Collapse 
sm 


HERMAN  CAHM 


AID 


1132 


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lThe  collapse  of 
capitalism^ 


By 

HERMAN  CAHN 

AUTHOR  OF  "CAPITAL  TODAY". 


CHICAGO 

CHARLES  H.  KERR  &  COMPANI 

1918 


^ 


JOHN  F.  HiGOIKS,  PSINTER  AND  UNDEB 
876-380  WEST  MONROE  STREET,  CHICAOO 


UNIVERSITY  OF  SOUTHERN  CALIFORNIA  UBRAK« 


CONTENTS 


Chapter  Page 

Introduction  5 

I.     Socialist  Difference  of 

Opinion 11 

II.     Stagnant  Economics   17 

III.  The  Fatal  Flaw  of  Capitalism    33 

IV.  Money  OF  Account 49 

V,     The  Social  Insolvency 66 

VI.     The  Money  Source  for  the 

War  Loans 84 

VII.    The  War,  Birth  Deliverer  of 

Socialism   101 


INTRODUCTION 

SOME  of  our  best  informed  American 
socialists  evidently  think  it  good  pol- 
icy to  contend  that  the  European  so- 
cialists tried  to  prevent  the  war,  but 
unfortunately  were  powerless  to  do  so. 
No  doubt  this  is  mainly  intended  as  an 
excuse  for  the  German  socialists  who 
were  considered  the  advance  guard  of  the 
International  until  the  outbreak  of  the 
war.  Those  who  make  this  contention, 
so  much  at  variance  with  the  facts,  be- 
lieve that  the  socialist  movement  will  go 
on  after  the  war,  much  the  same  as  be- 
fore and  for  an  indefinite  time.  Their 
purpose  is  to  re-establish  the  Interna- 
tional and  in  order  to  put  the  movement 
on  the  old  track  again,  to  prepare  by 
bringing  about  a  general  reconciliation  of 
the  dissenting  elements. 

Lassalle  has  said  that  "it  is  futile  to  try 

to  be  cunning  in  great  things,"  and  we 

may  add  that  this  maxim  is  true  no  matter 

how  well  intentioned  the  cunning  might 

5 


O  THE  COLLAPSE  OF  CAPITALISM 

be.    There  is  never  anything  as  beneficent 
on  great  occasions  as  the  truth. 

At  least  definitely  a  year  before  the 
outbreak  of  the  war,  but  more  probably 
for  a  number  of  years  past,  the  Interna- 
tional betrayed  a  lack  of  coherence. 
When  that  great  catastrophe  came,  it  re- 
vealed, as  could  plainly  be  foreseen,  any- 
thing but  that  unity  of  action  which  was 
logically  to  be  expected  of  a  party  priding 
itself  on  its  ability  to  judge  current 
events  scientifically  and  to  foretell  future 
events  by  its  understanding  of  present 
causes.  If  the  science  on  which  the  party 
was  based  has  not  demanded  important 
modification,  something  to  which  all  sci- 
ences, especially  that  of  economics,  are 
subject ;  if  a  cleavage  has  not  taken  place 
within  the  working  class,  dividing  it  into 
social  groups  with  antagonistic  interests ; 
and  if  the  length  of  time  which  may  seem 
necessary  for  an  expected  event  to  mate- 
rialize does  not  influence  men's  present 
and  practical,  even  if  not  theoretical, 
attitude  in  regard  to  such  an  event — then 
there  is  no  explanation  for  the  divergence 
of  thought  among  those  who  style  them- 
selves socialists  and  for  their  failure  to 


INTRODUCTION  7 

act  as  a  unit.  At  that  critical  moment 
united  action  of  the  International  would 
not  have  been  pacifistic,  but  revolution- 
ary, v^hile  at  present  the  demand  for 
"peace  by  negotiation,"  or  dickering,  is 
purely  pacifistic. 

In  the  United  States  the  socialist  move- 
ment was  too  weak  to  be  put  to  the  real 
test  of  action,  instead  of  mere  declara- 
tions. But  even  here  dififerences  of  opin- 
ion arose.  This  is  not  to  be  understood 
as  referring  at  all  to  the  handful  of  former 
party  members  who  joined  the  jingo  mul- 
titude— fiction  writers,  rich  of  imagina- 
tion, but  sorely  poor  in  knowledge ;  writ- 
ers for  popular  magazines  who  never 
were,  nor  needed  to  be,  particular  about 
their  facts;  sentimentalists  graduated 
from  charitable  settlements;  professors 
and  other  collegians  handicapped  by  their 
college  training,  etc.,  etc.  All  these  ele- 
ments were  liable  to  flop  at  any  time.  No, 
we  refer  to  dififerences  of  opinion  between 
real  Marxian  socialists. 

The  immense  majority  of  these  have 
to  the  best  of  their  ability  opposed  our 
entrance  into  the  war,  and  since  this  step 
was  simply  irresistible,  they  have  since 


8  THE  COLLAPSE  OF  CAPITALISM 

been  advocating  an  early  peace.  What 
evidently  has  determined  their  attitude  is 
the  old  socialist  ideal  of  universal  peace, 
an  ideal  which,  however,  cannot  be  real- 
ized in  an  antagonistic  form  of  society 
and  of  which  the  realization  must  be  de- 
ferred until  that  form  of  society  has 
ceased  to  exist. 

There  was,  on  the  other  hand,  a  small 
number  of  socialists  in  our  midst  who, 
with  remarkable  intuition,  saw  in  this 
world  war  from  the  very  start  an  act  of 
suicide  on  the  part  of  capitalism.  After 
the  die  had  been  cast  it  was  a  mistake, 
so  they  felt,  to  try  to  prevent  capitalism 
from  accomplishing  its  own  destruction. 
They  could  not,  in  conscience  and  as  hu- 
mane men,  help  the  consummation  along, 
but  they  could  advise  keeping  our  hands 
ofif.  Had  their  advice  received  any  atten- 
tion, many  a  useless  sacrifice  to  mob  law 
would  have  been  spared.  True,  these 
sacrifices  are  a  mere  trifle  compared  to 
the  untold  suiifering  caused  by  the  war. 
This  suffering  went  to  the  hearts  of  the 
few  dissenters  no  less  than  it  did  to  the 
hearts  of  the  pacifists,  but  the  former 
recognized   that    it    was   the   inexorable 


INTRODUCTION  V 

price  which  humanity  had  to  pay  for  its 
final  moulting  from  animaldom. 

The  word  "intuition"  has  been  used  in 
the  preceding  paragraph  with  due  delib- 
eration. Although  the  provisions  of  these 
few  fine-sensed  socialists  are  now  rapidly 
coming  true  in  a  general  way,  yet  it  is  a 
fact  that  they  never  stated  their  reasons 
clearly  or  convincingly.  Certainly  the 
decisive  reason  was  never  mentioned  by 
them.  That  is  a  matter  of  post-Marxian 
economics  which  this  little  book  under- 
takes to  submit  in  brief  form.  Economic 
evolution  plays,  in  our  time,  a  more  de- 
cisive part  than  in  the  past,  and  even  more 
decisive  than  we  could  have  thought  pos- 
sible only  a  few  years  ago.  The  influence 
of  popular  intelligence  on  social  revolu- 
tion is  reduced  to  its  lowest  expression — 
Hobson's  choice.  The  people,  when  the 
moment  shall  have  come,  will  do  that 
which  they  must  do,  that  which  they  can- 
not help  doing. 

Basing  ourselves  on  the  economics  of 
Marx,  we  shall  find  by  analysis  of  the 
most  profound  change  which  has  sur- 
vened  in  the  economic  world  since  his 
time,  that  a  new    force    has    grown  up 


10  THE  COLLAPSE  OF  CAPITALISM 

which  no  longer  leaves  the  downfall  of 
capitalism  to  the  vague  future,  or  its 
earlier  ending  to  the  spread  of  a  high 
degree  of  intelligence  among  the  real 
proletariat,  but  makes  the  coming  of  that 
great  event  a  matter  of  figures  and  en- 
tirely independent  of  even  the  collective 
will  of  men.  The  war  has  enormously 
hastened  the  development  of  this  force, 
and  the  catastrophe  is  imminent. 

Therefore,  godspeed  to  the  blind  tools 
of  history,  who  are  hastening  the  destruc- 
tion of  the  war-breeding  class  state ! 


THE  COLLAPSE  OF 
CAPITALISM 

CHAPTER  I 
Socialist  Differences  of  Opinion 

HAS  it  escaped  the  reader  that  a  com- 
plete change  of  mind  has  taken 
place  among  the  leaders  of  American 
capitalism  during  the  past  year?  Do  you 
remember  how  not  so  long  ago  we  were 
in  high  glee  over  the  billions  of  profit  we 
were  gathering  in  furnishing  to  war  the 
necessaries  of  his  business?  What  an  im- 
petuous customer  he  was,  caring  only  for 
early  delivery,  and  not  for  price  at  all. 
He  did  not  have  to  make  a  living  selling 
the  goods  at  a  profit;  his  business  was 
bankrupt  from  the  start.  How  our  for- 
eign debt  was  wiped  out  either  by  pur- 
chase of  the  securities  or  by  receiving 
them  as  collateral  for  our  loans?  How 
our  bank  reserves  were  swelled  by  ship- 
ments from  Europe  of  gold,  enabling  the 
banks  to  inflate  their  loan  accounts  to  the 
tune  of  seven  times  as  much?    We  had 


12  THE  COLLAPSE  OF  CAPITALISM 

ceased  to  be  a  debtor  nation  and  had  be- 
come a  creditor  nation  instead.  We  were 
by  far  the  richest  country,  and  Europe's 
misfortune  would  surely  afiford  us  a  still 
greater  lead.  Europe's  South  American 
investments  of  $6,000,000,000— ship- 
wrecked by  Europe's  inability  to  further 
finance  the  enterprises — would  fall  into 
our  lap  at  ten  cents  on  the  dollar.  We 
started  to  invest  in  China,  that  country 
of  fabulous  possibilities  of  exploitation. 
New  York  was  going  to  be  the  financial 
center  of  the  world,  instead  of  London. 
And  we  were  going  to  have  the  necessary 
number  of  battleships  to  protect  our  em- 
pire, for  "in  international  finance  there 
are  no  receiverships,  unfortunately,"  as 
Mortimer  Schiff  said,  with  tears  in  his 
eyes,  in  addressing  a  bankers'  meeting, 
"we  still  need  battleships." 

Then  the  change  of  mind  already  al- 
luded to  took  place.  The  mood  changed. 
There  was  a  transition  from  the  exultant 
strains  in  the  major  key  to  discordant 
tones  of  alarm.  The  chorus  voicing  the 
hope  that  American  capital  was  to  exploit 
the  world  has  now  become  mute.  In- 
stead, posters  show  us  Columbia  with  a 


SOCIALIST  DIFFERENCES  OF  OPINION       13 

frown  of  anguish,  and  the  epigraph,  "You 
buy  a  liberty  bond  lest  I  perish."  And 
our  Secretary  of  the  Treasury,  son-in-law 
of  our  President,  says  that,  unless  we 
sacrifice  money  without  stint,  we  stand 
to  lose  125,000  millions  of  dollars.  Why 
just  that  sum?  Surely,  it  is  not  the  result 
of  calculation.  It  so  happens  that  that 
sum  represents  half  of  the  lately-men- 
tioned estimates  of  our  national  wealth, 
and  the  possibility  of  the  loss  of  the  cap- 
ital accumulation  of  a  generation  should 
suffice  to  send  cold  shivers  down  the 
backs  of  the  possessors  of  our  national 
wealth  and  to  produce  the  necessary  state 
of  mind. 

Of  course,  he  might  have  given  the  full 
and  true  weight  to  his  warning  by  saying 
that  we  stand  to  lose  every  dollar  of  our 
wealth.  But  that  would  have  let  the  cat 
out  of  the  bag  by  inducing  the  question 
how  that  were  possible,  unless  the  very 
existence  of  capitalism  were  at  stake.  It 
would  have  led  to  too  much  thinking,  and 
you  cannot  make  war  that  way. 

Evidently  the  light  of  a  new  economics 
has  broken  in  on  the  minds  of  the  direct- 
ing group  of  the  capitalist  class.     Has, 


14  THE   COLLAPSE  OF  CAPITALISM 

perhaps,  Mr.  Theodore  Price,  the  editor 
of  Commerce  and  Finance,  privately- 
made  it  clear  to  them  what  o'clock  it  is? 

And  so,  in  order  to  still  prevent,  if  pos- 
sible, the  completion  of  capitalism's  sui- 
cide, we  had  to  endeavor  to  end  the  war. 
We  forgot  our  former  fear  of  sudden 
peace.  We  began  to  see  the  peril  of  con- 
tinued war  and  it  was  becoming  evident 
that  there  was  no  possibility  of  peace  ex- 
cept through  the  victory  of  one  side.  So 
we  thrust  all  our  war  profits  into  the 
war's  furnace  and  duplicated  the  sum  at 
once  out  of  our  original  capital — ten  bil- 
lion dollars  in  all.  In  addition,  we  pre- 
pare to  take  a  million  men  out  of 
productive  life. 

Such  is  the  emergency  as  seen  at  least 
by  the  inner  circle  of  the  capitalists  who 
mould  "public  opinion."  In  the  face  of 
this  the  socialists  hold  dififering  views. 
I  hope  that  nobody  misunderstands  me 
as  referring  at  all  to  the  handful  of  novel 
writers,  poets  and  other  literati  who  re- 
cently said  goodby  to  us.  They  are  long 
on  imagination,  but  particularly  short  on 
knowledge.  Judge  of  their  fund  of  the 
latter,  if  perhaps  the  solidest  among  them, 


SOCIALIST  DIFFERENCES  OF  OPINION       15 

formerly  a  director  of  a  school  of  social 
science,  in  answering  a  question  of  a 
reader  in  a  recent  issue  of  the  Appeal  to 
Reason,  says  that  no  doubt  there  would 
be  money,  banks  and  interest  under 
socialism. 

The  International  broke  down  from  a 
lack  of  unity  between  the  national  so- 
cialist parties  in  their  world  outlook. 
Especially  the  main  contingent,  the  Ger- 
mans, separated  themselves  more  and 
more  on  the  question  of  war  from  the 
British  and  French,  led  by  Hardie  and 
Jaures.  The  attitude  of  the  Germans,  and 
their  ultimate  defection,  is  not  to  be  ex- 
plained by  national  character  or  national 
training,  but  by  economic  development. 
But  this  can  more  adequately  be  discussed 
in  the  next  chapter  after  having  taken  a 
closer  look  at  the  present  state  of  eco- 
nomic thought  among  the  workers.  The 
defection  of  the  Germans,  interpreted  as 
baseness  and  treason  by  most  French  and 
British  socialists,  so  outraged  the  latter 
that  they  became  supporters  of  their  gov- 
ernments for  war  a  outrance.  However, 
there  exists  now  in  every  country  a  con- 
siderable socialist   element  which  holds 


16  THE   COLLAPSE  OF   CAPITALISM 

with  the  American  sociaHst  party  that  the 
interests  of  the  international  proletariat 
demand  immediate  peace.  International 
socialist  action  at  the  present  time  in 
favor  of  peace  cannot  be  viewed  in  the 
same  light  as  similar  action  might  have 
been  before  the  war.  At  that  time  action 
in  favor  of  peace  was  revolutionary  action 
against  capitalism.  Today  such  action 
would  try  to  rescue  capitalism. 

In  the  face  of  one  of  the  most  stupen- 
dous facts  of  all  history  the  socialists  are 
at  sea,  left  without  guidance  by  the 
scientific  socialism  known  to  them. 


CHAPTER  II. 
Stagnant  Economics. 

NOBODY  can  put  a  higher  estimate  on 
Marx's  work  than  the  writer  of  this 
book.  I  have  said  elsewhere  that  the 
human  race  has,  perhaps,  not  produced  a 
man  of  equal  power  of  analysis  and 
consecutive  thinking  in  the  thousands  of 
years  since  Aristotle. 

A  professor  of  economics  at  a  New 
England  university,  writing  in  the  Inter- 
collegiate Socialist,  describes  my  devo- 
tion to  Marx  as  "almost  touching."  It 
must  seem  all  the  more  touching  since, 
according  to  the  professor,  every  word 
that  Marx  wrote  on  economics  was  false. 
Being  a  very  ignorant  man  on  the  par- 
ticular subject  of  economics,  he  does  not 
realize  that  he  says  just  that  and  no  less. 
But  it  throws  a  peculiar  light  on  the 
understanding  of  Socialism  in  some  quar- 
ters that  neither  the  editor  of  the  Inter- 
collegiate Socialist,  nor  any  of  its  readers, 
questioned  the  professorial  authority. 

Yet  all  sciences  are  subject  to  change, 
and  none  changes  as  continually  and 
17 


18  THE  COLLAPSE  OF   CAPITALISM 

rapidly  as  economics.  At  one  time  an 
accepted  definition  of  mammals  became 
insufficient  in  consequence  of  the  discov- 
ery on  a  new  continent  of  egg-laying 
mammals.  Old  geographies  describe  as 
seaports  cities  now  miles  from  the  coast. 
What  is  permanent  in  Marx  is  his  intro- 
duction of  the  methods  of  science  into 
economics  and  his  analysis  of  the  eco- 
nomic phenomena  existing  in  his  time. 
As  no  error  has  ever  been  proven  against 
these  analyses,  they  must  form  the 
groundwork  for  the  study  of  any  subse- 
quently arising  economic  phenomena. 
But  as  far  as  Marx's  forecast  of  the 
future,  based  on  the  economic  conditions 
in  his  time,  is  concerned,  it  is  subject  to 
modification  by  later  economic  develop- 
ments. And,  indeed,  developments  of 
overshadowing  importance  have  taken 
place  since  Marx,  which  will  be  briefly 
outlined  in  the  next  chapter.  If  economic 
development  has  made  a  great  stride  for- 
ward and  Marxists  remain  under  the 
impression  that  nothing  essential  has 
changed,  then  their  science  becomes  de- 
tached from  the  living  present  and  in- 
capable  of   understanding   it.     Marxism 


STAGNANT  ECONOMICS  19 

thus  becomes  atrophied  and  reduced  to 
mere  scholasticism. 

The  final  conclusion  derived  from 
Marx's  analysis  of  the  life  processes  of 
capitalist  society  is  that  their  inner  con- 
tradictions prove  this  form  of  society  to 
be  only  transitional,  not  a  final  form.  The 
operation  of  these  processes  has  the 
double  effect  of  increasing  the  difficulties 
of  the  present  form  of  society  and  pre- 
paring the  technical  conditions  for  a 
higher,  a  perfectly  social  form.  The  se- 
quence of  thoughts  may  be  summarized 
briefly  as  follows : 

Free  competition,  a  life  principle  of 
capitalism,  forces  the  individual  capital- 
ist concern  to  strive  ever  for  a  lower  cost 
of  production.  This  purpose  is  attained 
mainly  by  improving  the  means  of  pro- 
duction and  enlarging  them  to  any  scale 
called  for  by  new  scientific  discoveries 
and  the  development  of  technique.  The 
mass  of  products  is  thus  constantly  in- 
creased. But  capitalist  production  is  car- 
ried on  primarily  for  profit.  The  profit 
can  only  be  realized  by  the  sale  of  the 
products.  But  inasmuch  as  the  workers, 
the  great  and  ever-growing  mass  of  the 


20  THE  COLLAPSE  OF  CAPITALISM 

population,  receive  in  the  form  of  wages 
only  part  of  the  product  value,*  the  con- 
tradiction between  the  irresistibly  grow- 
ing mass  of  commodities  and  the  condi- 
tions for  realizing  the  profit  by  their  sale 
becomes  ever  greater.  On  the  one  hand, 
the  system  tends  to  frustrate  its  own  pri- 
mary purpose ;  on  the  other,  it  inflicts  un- 
employment and  privation  on  the  work- 
ers, who  are  thus  forced  to  end  the 
system. 

As  a  prognostication  based  on  the 
working  of  the  economic  factors  in  Marx's 
time,  the  foregoing  is  as  logical  today  as 
when  it  was  first  given  to  the  world  by 
him.  And  that  it  would  prove  true  ulti- 
mately on  its  premises  alone  cannot  be 
questioned,  in  spite  of  certain  obstacles 
which  have  since  appeared  and  which  re- 
late to  the  important  question  of  time — 
the  time  necessary  for  capitalism  to  reach 
its  phase  of  decay  and  untenability.  Time 
is  apt  to  afifect  any  problem  of  human 
affairs  very  materially.  A  later  economic 
phenomenon  might  arise,  and,  as  I  will 


•I  have  considered  it  of  importance  to  prove  in 
"Capital  Today,"  from  official  figures,  that  this  part 
is  not  large,  but  exceedingly  small — no  more  than  20 
to  25  per  cent. 


STAGNANT    ECONOMICS  21 

show,  actually  has  arisen,  promising  the 
social  transformation  in  a  much  shorter 
time  and  rendering  the  earlier  prognosti- 
cation obsolete. 

The  obstacles  above  referred  to  are,  or 
rather  were  before  this  revolutionizing 
war: 

(1)  Modern  imperialism,  signifying  the 
almost  unlimited  expansion  of  capitalism. 

(2)  As  a  result  of  this  determining  de- 
velopment, a  changed  ideology  of  certain 
elements  among  the  workers  and  of  the 
intellectual  proletariat. 

Modern  imperialism  aims  at  the  politi- 
cal control  of  all  backward  countries  by 
the  great  capitalist  governments  for  the 
purpose  of  securing  to  their  respective 
capitalists  the  safety  of  the  industrial  en- 
terprises which  these  may  establish  in 
those  countries.  The  control  is  to  insure 
to  the  home  industries  the  necessary  sup- 
ply of  raw  material,  a  monopolistic  mar- 
ket for  the  home  exploitation  of  the  con- 
trolled territories.  This  exportation  of 
surplus  capital — not  of  loan  capital,  as  is 
often  understood,  but  of  industrial  capi- 
tal, principally  in  the  form  of  commodi- 
ties— appeared  to  be  capable  of  almost 


22  THE  COLLAPSE  OF  CAPITALISM 

boundless  extension,  and  promised  a  long 
lease  of  life  to  capitalism.  China  alone  is 
ready  tomorrow  to  absorb  a  capitaliza- 
tion of  a  hundred  billions  of  dollars.  In 
face  of  such  possibilities  Marx's  forecast 
loses  much  of  its  force. 

About  the  time  when  Marx's  "Capital" 
appeared,  the  United  States,  having  just 
overcome   the   agrarian   South,   emerged 
from  colonial  conditions  and  started  on 
its  wonderful  career  as  an  industrial  na- 
tion.    Our  capitalists  have  now  become 
the  richest  in  the  world,  and  their  annual 
profit  accumulations  have  attained  a  vol- 
ume which  makes  investment  on  a  profit 
basis — not  on  a  mere  interest  basis — dif- 
ficult at  home.     The  railroad  system  is 
completed   and    is   paying   for    improved 
equipment,  as  are  the  trusts,  largely  out 
of   profits.      More    recently    the    nascent 
automobile  industry  called  for  new  capi- 
tal.   Since  then  there  has  come  no  impor- 
tant call  for  capital  on  a  profit  basis,  such 
as  our  capitalists  have  been  accustomed 
to.     They   must   look   abroad    and   have 
their  eyes  on  Latin  America  and  China. 

The  great  rise  of  capital  in  Germany 
dates  from  about  the  same  time  and  has 


STAGNANT    ECONOMICS  23 

been  equally  prodigious.  It  received  its 
impetus  partly  from  the  French  war  in- 
demnity, but  especially  from  the  protec- 
tive tariff  established  in  1878.  Being  a 
small  country,  with  few  natural  resources, 
Germany  has  been  aiming  to  control  back- 
ward countries  to  insure  the  necessary 
supply  of  raw  materials  for  her  trusts  and 
monopolistic  markets  for  their  products. 
Everywhere  she  encountered  England, 
either  in  prior  possession  or  otherwise  in 
opposition. 

The  industrial  advance  of  Germany  was 
accompanied  by  a  marked  improvement 
in  the  condition  of  her  working  class,  to 
some  extent  fostered  from  above  by  "so- 
cial legislation."  Emigration  almost 
ceased  and  was  balanced  by  immigration 
of  Poles  and  Italians.  The  type  of  the 
German  worker  before  the  great  indus- 
trial rise  was  a  man  wearing  a  blue  blouse 
and  a  cap,  with  a  clay  pipe  in  his  mouth. 
Ten  years  ago  the  writer  saw  the  railway 
platform  of  a  large  city  densely  crowded 
with  gentlemen  wearing  natty  woolen 
suits,  derby  hats,  carrying  leather  hand- 
bags and  smoking  cigars.    On  inquiry  he 


24  THE   COLLAPSE  OF   CAPITALISM 

learned  that  they  were  workingmen  going 
to  their  homes  in  the  suburbs. 

The  Socialist  movement  in  Germany 
antedates  big  capitalism  and  trade  union- 
ism. The  earlier  Socialists  were  enthusi- 
astic, aggressive  and  somewhat  prone  to 
violence.  But  their  mood  changed  grad- 
ually. For  years  past  many  voices  were 
heard  in  their  party  condemning  its  in- 
aggressiveness  and  growing  conserva- 
tism. In  international  congresses  the 
Germans  were  the  stumbling  block  to 
common  action  against  militarism  and 
war.  But  the  most  remarkable  historical 
fact  is  that  a  year  before  the  outbreak  of 
the  war,  almost  at  the  same  moment  when 
the  French  Socialists  under  Jaures'  lead- 
ership came  out  of  a  victorious  electoral 
campaign  which  resulted  in  the  installa- 
tion of  a  new  ministry  favoring  reduction 
of  military  service  from  three  to  two 
years,  the  German  party  for  the  first  time 
in  its  history  of  over  forty  years  voted 
the  military  budget. 

Who  can  doiibt  today,  seeing  through 
the  present  relations  between  the  so- 
called  majority  Socialists  and  the  im- 
perial   government,    that    the    former's 


STAGNANT    ECONOMICS  25 

claim  that  they  were  unprepared  on  that 
4th  of  August,  taken  by  surprise  by  the 
events,  fooled  by  the  government  into 
the  belief  that  the  principal  fight  would 
be  waged  against  the  Czar,  are  mere  shal- 
low excuses,  that  they  knew  a  year  before 
what  was  coming  and  that  then  was  the 
time  when  they  had  to  decide  whether 
they  would  stand  by  the  international 
proletariat  or  by  the  German  capitalists. 

What  brought  about  this  gradual  men- 
tal change  and  finally  the  deliberate  dis- 
regard of  Marx's  admonition,  "Working- 
men  of  all  countries,  unite,"  by  the  former 
advance  guard  of  the  international  Social- 
ist movement  is  something  we  very  much 
need  to  understand. 

The  rapid  capitalistic  expansion  had 
favored  the  spread  of  trade  unionism  and 
created  a  large  salaried  intellectual  prole- 
tariat in  the  industrial  professions.  In 
becoming  unionists,  the  workers  did  not 
cease  to  be  Socialists.  But  the  spirit  of 
trade  unionism  gained  the  ascendency. 
Capitalism  was  soaring.  The  fulfillment 
of  Marx's  prediction  of  the  loss  of  control 
of  the  means  of  production  by  the  capital- 
ist class  seemed  removed  into  the  hazy 


26  THE  COLLAPSE  OF  CAPITALISM 

future.  It  seemed  better  to  give  prece- 
dence to  the  workers'  immediate  material 
interests.  Of  course,  one  might  continue 
to  vote  the  Socialist  ticket — no  harm  in 
that,  and  it  might  be  useful,  as,  for  in- 
stance, in  protecting  the  right  of  organiza- 
tion. But  if  it  came  to  deciding  a  real 
issue,  such  as  whether  a  general  strike 
should  be  resorted  to  in  order  to  gain  the 
franchise  in  Prussia,  the  trade  union  spirit 
prevailed  over  the  Socialist  spirit. 

What,  really,  is  this  trade  union  spirit? 
Perhaps  illustration  may  be  better  than 
dissertation,  especially  if  taken  from  well 
known  facts  nearer  home. 

Before  the  great  Paterson  silk  strike  of 
1913  the  loomfixers,  warpers  and  twisters 
were  organized.  Constituting  a  small 
group  (about  five  per  cent  of  the  total 
number  of  silk  workers),  but  able  to 
paralyze  the  industry,  they  had  managed 
to  raise  their  wages  fifty  per  cent  above 
those  of  good  weavers,  while  in  Pennsyl- 
vania, in  the  absence  of  organization,  the 
wages  were  the  same,  or  but  little  higher, 
than  those  of  good  weavers.  When  the 
uprising  broke  out  these  privileged  work- 
ers were  forced  into  idleness.  Intolerable ! 


STAGNANT    ECONOMICS  27 

The  privilege  to  paralyze  the  industry 
was  theirs,  and  now  this  mass  of  mudsills 
were  turning  the  tables  on  them.  If  the 
ninety-five  per  cent  were  successful, 
it  meant  a  new  order  of  things.  Where 
there  had  been  easy  acquiescence  on 
the  part  of  the  bosses  to  the  demands 
of  the  few,  there  would  be  strenuous  re- 
sistance hereafter  to  the  demands  of  all. 
Raising  the  price  of  a  particular  product, 
comparatively  to  that  of  other  products, 
tends,  save  under  exceptionally  favorable 
conditions,  to  lessen  its  consumption,  thus 
sharpening  competition  and  reducing  the 
profit  rate.  The  well-being  of  the  union 
members  is  conditioned  on  the  helpless- 
ness of  the  masses.  If  the  unions  erected 
no  barriers  against  the  unlimited  growth 
of  their  own  membership,  or  if  they  strove 
for  the  general  organization  of  the  whole 
working  class,  they  would  lose  their  pres- 
ent privileged  position  absolutely.  And 
so  the  American  Federation  of  Labor  sent 
officers  of  an  affiliated  textile  union  to 
Paterson  to  break  up  the  strike. 

Lest  it  might  be  thought  that  this  case 
may  be  exceptional  and  not  characteristic 
of   the   general   attitude   of   the    unions 


28  THE  COLLAPSE  OF   CAPITALISM 

toward  the  masses,  let  me  recall  an  inci- 
dent which  lays  bare  the  whole  antagon- 
ism. At  the  hearing  on  the  New  York 
state  health  insurance  bill,  the  general 
organizer  of  the  American  Federation  of 
Labor,  speaking  in  opposition  to  the  bill, 
said:  "Trade  unions  already  have  suc- 
cessful insurance  systems"  and  "labor 
does  not  want  class  legislation  even  for 
itself."  When  these  men  use  the  word 
labor,  they  always  do  so  with  a  mental 
reservation.  They  do  not  mean  the  ab- 
straction which  is  expressed  by  this  word, 
but  the  concrete  members  of  the  craft 
unions.  These  oppose  class  legislation 
for  themselves,  if  it  at  the  same  time  helps 
the  masses,  and  the  more  so  if  it  helps 
the  masses  to  the  disadvantage  of  the 
unions.  The  trade  unions  are  able  to  help 
themselves. 

These  facts  were  expressed  essentially 
by  a  representative  of  a  very  large  union, 
comprising,  however,  all  workers  em- 
ployed in  the  industry.  She  spoke  at  the 
hearing  in  favor  of  the  bill,  "not  because 
it  is  necessary  for  organized  labor,  but 
because  it  is  imperative  for  unorganized 
labor.     Where  there  are  two  and  a  half 


STAGNANT    ECONOMICS  29 

million  organized  workers  in  the  United 
States,  there  are  about  thirty  million  un- 
organized workers." 

For  forty  years  the  Socialists  in  this 
country  have  tried  to  make  propaganda 
among  the  unions  and  avoided  everything 
that  might  displease  them.  All  in  vain. 
Contrary  to  the  order  of  events  in  Ger- 
many, in  America  the  unions  were  on  the 
spot  before  the  Socialists.  It  is  the  cus- 
tom of  the  latter  to  reproach  the  unions 
with  being  unenlightened  and  to  express 
the  eternal  hope  that  they  may  recognize 
the  necessity  of  modernizing  their  organi- 
zation. All  in  vain.  They  do  not  want 
to  be  converted.  You  cannot  give  points 
to  Samuel  Gompers  on  Marxian  eco- 
nomics. He  was,  in  his  younger  days,  a 
capable  student  of  them,  as  the  writer 
knows  personally,  but  he  decided  to  use 
his  knowledge  in  the  interest  of  a 
relatively  small  class. 

The  foregoing  is  not  meant  as  a  re- 
crimination against  unions  or  against 
Gompers.  It  is  all  "economic  determin- 
ism." Social  revolutions  are  not  brought 
about  by  the  force  of  intellect,  but  by  eco- 
nomic pressure.    Marxian  economics  per- 


30  THE   COLLAPSE  OF  CAPITALISM 

mit  this  pressure  to  be  relegated  to  an 
uncertain  future.  The  consequence  was 
the  rise  of  an  intermediate  class  able  to 
save  itself  from  submersion  by  pressing 
down  on  the  masses. 

In  Germany  this  new  class  included  an- 
other important  element,  namely,  that  of 
the  mental  workers.  With  its  model  sys- 
tem of  technical  schools  that  country  pro- 
duced chemists,  mechanicians,  etc.,  so  to 
say,  by  machine,  when  in  other  countries 
they  were  still  being  made  by  hand.  Nat- 
urally their  exchange  value  fell  and  for 
many  years  past  we  heard  much  about 
Germany's  intellectual  proletariat ;  also 
complaints  about  their  prominence  and 
undue  influence  in  the  party.  They 
smarted  under  the  handicaps  of  a  cramped 
Germany  and  their  ideology  became  im- 
perialistic. These  able  men,  instead  of 
earning  small  salaries  at  home,  saw  them- 
selves earning  large  salaries  as  technical 
directors  in  German  dependencies,  if  only 
Germany  would  possess  that  "place  in  the 
sun"  to  which  her  capacity  entitled  her 
and  which  England  refused  her. 

Their  ideology  harmonized  with  that  of 
the  trade  unionists,  who  soliloquized  in 


STAGNANT    ECONOMICS  31 

the  following  strain  i  "We  have  done 
very  well  since  our  country  has  become 
industrialized.  Why  should  we  not  fare 
still  better  if  our  country  gained  a  'place 
in  the  sun'?  We  are  living  now,  and  So- 
cialism is  still  far  off.  Really  the  inter- 
ests of  (German)  capital  and  (German) 
labor  are  identical.  The  identity  of  in- 
terest of  the  whole  world  proletariat  is 
for  the  present  a  chimera.  We  are  an  all 
embracing  German  trade  union.  Each 
one  of  us  was  a  German  before  he  was  a 
Socialist." 

These  elements,  the  trade  unions  and 
the  salaried  intellectuals,  as  the  econom- 
ically better  situated,  better  educated  and 
more  alert,  secured  control  of  the  party 
machinery  and  of  its  representation  in  the 
Reichstag.    We  know  the  result. 

What  happened  on  the  4th  of  August 
was  nothing  cowardly  or  treacherous.  It 
was  simply  the  outcome  of  economic  de- 
velopment, which  does  not  stand  still, 
even  if  economic  science  sometimes  does. 
The  admonition,  "Workers  of  all  coun- 
tries, unite,"  and  the  axiom,  "The  eman- 
cipation of  the  working  class  must  be  ac- 
complished by  the  workers  themselves," 


32  THE  COLLAPSE  OF  CAPITALISM 

have  paled.  But  our  hearts  need  not 
grow  heavy  on  that  account.  In  our  time 
— more  so  than  ever  before — man  is 
driven  by  the  superior  powQi^*  of  economic 
law,  and  old  formulae  may  not  hold.  For- 
tunately and  wonderfully,  capitalism  was 
born  with  the  germ  of  a  mortal  disease 
which  has  been  revealed  only  in  the 
course  of  the  last  fifty  years,  and  the  com- 
ing of  its  fatal  crisis  can  be  almost  meas- 
ured. The  progress  of  the  disease  has 
been  abnormally  furthered  by  the  war. 
Capitalism  is  now  moribund  and  its  end 
is  due  within  a  very  few  years. 


CHAPTER  III. 
The  Fatal  Flaw  of  Capitalism. 

IT  CANNOT  be  stated  too  often  that  all 
analyses  of  recent  economic  develop- 
ment must  start  with  the  basis  estab- 
lished by  the  discoveries  of  Marx. 

Capitalism  is  quasi-social.  Each  unit 
of  society  produces  things  which  others 
want,  and  itself  consumes  what  the  others 
produce.  There  exists,  however,  no  regu- 
lation of  production  and,  while  there  is  a 
general  division  of  labor,  the  units  act  on 
their  own  responsibility. 

The  division  of  the  products  is,  conse- 
quently, only  possible  by  their  being  uni- 
versally exchanged  for  each  other  on  the 
general  basis  of  value  or  socially  neces- 
sary labor  time.  Thus  products  are  not 
merely  useful  things,  but,  owing  to  their 
value  relation,  commodities.  To  effect 
these  numerous  exchanges  directly  is  an 
absolute  impossibility. 

It  was   necessary  for  the   commodity 

producing  society,  of  which  capitalism  is 

the  modern  development,  to  hit  on  some 

single  commodity  for  which  the  demand 

33 


34  THE   COLLAPSE  OF   CAPITALISM 

was  always  at  least  equal  to  the  supply, 
and  which  might  thus  be  acceptable 
everywhere  in  exchange  for  any  other 
product.  Many  things  have  served  as 
such  widely  accepted  equivalents,  but 
finally  gold  proved  itself  to  be  naturally 
the  universal  equivalent.  Social  recogni- 
tion made  this  particular  commodity  the 
world's  money,  in  which  all  values  are 
expressed  and  which  can  buy  anything 
anywhere.  Thus  there  are  two  categories 
in  the  process  of  the  above  mentioned 
process  of  exchange — the  commodity  and 
money.  The  producer  sells  for  gold  and 
with  it  buys  what  he  needs.  He  effects 
an  exchange  of  two  commodities  by 
means  of  money. 

It  is  already  seen  that  money  (which  is 
now  synonymous  with  gold)  has  here  per- 
formed two  functions : 

First,  before  the  actual  exchange  it  has 
served  as  a  measure  of  value  or  an  indi- 
cation of  the  price  of  each  commodity ; 
therefore,  indirectly  of  the  relative  value 
of  the  two  commodities  or  the  quantita- 
tive proportion  in  which  they  were  ex- 
changeable. 

Secondly,  as  the  substantial  and   so- 


FATAL  FLAW  OF  CAPITALISM  35 

cially  recognized  equivalent  of  each  com- 
modity in  the  act  of  sale  or  purchase. 

Marx  notes  that  gold,  in  performing 
these  two  money  functions,  appears  in 
two  different  aspects : 

Only  abstract  or  ideal  gold — gold  in 
general — is  needed  for  the  money  func- 
tion of  measure  of  value. 

But  concrete,  particular  and  definite 
quantities  of  gold  are  needed  for  the  func- 
tion of  means  of  circulation  (including 
the  function  of  means  of  deferred  pay- 
ment, or  credit). 

Marx,  of  course,  does  not  say  that  the 
distinction  between  abstract  and  concrete 
gold  involves  any  incongruity  apt  to  sub- 
ject the  system  to  ill  effects  and  possibly 
prove  fatal  to  it.  Indeed,  there  can  be  no 
contradiction  between  sense-perceived  ob- 
jects and  their  generalization  or  abstrac- 
tion. When  we  say  "animal"  we  include 
in  this  abstraction  a  great  variety  of  crea- 
tures ;  but  although  a  whale  and  an 
amoeba  differ  greatly  from  each  other, 
neither  can  present  a  contradiction  with 
the  abstraction  "animal." 

Nevertheless,  since  Marx's  time  eco- 
nomic evolution  has  actually  produced  a 


36  THE  COLLAPSE  OF  CAPITALISM 

contradiction  between  concrete  and  ab- 
stract gold,  speaking  not,  of  course,  of 
gold  as  a  natural  product,  but  as  a  social 
institution,  as  the  money  material.  But 
even  so,  how  is  this  possible?  Are  not 
scientific  principles  universal,  applying  to 
the  science  of  economics  no  less  than  to 
the  other  sciences? 

There  are  cases  in  nature  where  a 
change  of  quantity  transforms  itself  into 
quality.  Water,  losing  a  certain  quantity 
of  heat,  becomes  ice.  Similarly  gold,  as 
the  money  material,  is  undergoing  a  quan- 
titative change  considered  in  relation  to 
the  social  need.  But  gold,  as  money,  per- 
forms a  dual  function.  When  the  quanti- 
tative change  in  one  direction  or  the  other, 
either  by  increase  or  decrease,  transforms 
itself  into  a  qualitative  one,  then  the  cor- 
respondence of  the  abstract  with  the  con- 
crete during  the  former  state  of  balance 
is  disturbed.  A  flood  of  gold  deprives  it 
of  the  quality  of  being  a  measure  of  value, 
while  it  favors  the  other  function.  De- 
ficiency, on  the  other  hand,  deprives  gold 
of  the  quality  of  being  a  means  of  circula- 
tion, whilst  its  function  of  measure  of 
value  remains  unaffected.    Concrete  gold 


FATAL  FLAW  OF  CAPITALISM  37 

and  abstract  gold  as  the  money  material, 
have  reached  a  state  of  contradiction. 

The  mere  statement  by  Marx,  sufficient 
in  his  time,  of  the  distinctive  uses  of  ab- 
stract and  concrete  gold  is  now  seen  to 
contain  the  germ  of  a  contradiction  which 
can  be  formulated  as  follows : 

Abstract  gold  can  fulfill  the  money 
function  of  measure  of  values  so  long  as 
the  concrete  quantities  from  which  the 
abstraction  is  derived  are  insufficient  for 
the  social  need ; 

Concrete  gold  can  fulfill  the  money 
function  of  means  of  circulation  (includ- 
ing deferred  payments)  so  long  as  the 
quantity  is  sufficient  for  the  social  need. 

What  actually  has  been  progressing 
since  Marx  with  ever-growing  momentum 
is  the  transformation  of  gold,  as  money, 
into  gold,  as  metal.  This  carries  with  it 
the  loss  of  its  quality  of  means  of  circula- 
tion, as  water  turning  to  ice  loses  the 
quality  of  drinkableness,  and  means  the 
rapidly  approaching  end  of  the  era  of 
money. 

The  contradiction  between  the  require- 
ment   of    scarcity    for    one    function    of 


38  THE   COLLAPSE  OF   CAPITALISM 

money  and  abundance  for  the  others  now 
can  be  clearly  recognized  as  the  most  fatal 
defect  of  capitalism. 

The  war  has  developed  this  contradic- 
tion with  abnormal  rapidity  to  a  point 
where  it  is  an  immediate  menace  to  that 
form  of  society.  Its  downfall,  root  and 
branch,  will  be  positively  assured  by  a 
continuation  of  the  war  for,  say,  another 
year.  That  downfall  will  then  be  like  an 
act  of  nature,  and  not  dependent  on  the 
mental  and  moral  preparation  of  the  peo- 
ples of  the  world  for  a  new  form  of  society 
which  must,  perforce,  be  completely 
social. 

On  the  existence  of  money  depends 
the  existence  of  capitalism.  The  condi- 
tions presented  by  gold  are  absolutely 
vital  to  its  life.  One  valuable  product, 
representing  social  labor  time,  is  neces- 
sary as  an  equivalent  which  confirms  to 
the  uncontrolled  private  producers  the 
social  validity  of  their  individual  labor 
time.  When  it  becomes  impossible  any 
longer  to  conform  to  this  necessity,  then 
the  category  of  money  breaks  down  and 
not  a  vestige  of  capitalism  can  survive  a 
day. 


FATAL  FLAW   OF  CAPITALISM  39 

Most  of  US  do  not  see  a  gold  piece  or 
bar  from  year's  end  to  year's  end.  We 
are  paid  our  wages  or  for  goods,  in  paper 
money  or  checks,  and  the  subject  of  gold 
seems  too  remote  to  hold  any  possible  in- 
terest for  us.  Even  those  of  an  inquiring 
mind  may  be  excused  if  at  first  sight  they 
approach  the  subject  with  a  feeling  of 
bored  resignation.  The  general  impres- 
sion is  that  this  subject  is  of  interest  only 
to  financiers.  And  yet  there  is  no  sub- 
ject which  touches  as  closely  the  eco- 
nomic future  of  the  reader,  of  the  work- 
ing class  and  of  the  whole  human  race,  as 
this  very  subject  of  gold. 

The  yellow  metal  always  has  been 
much  coveted.  With  the  increase  of  trad- 
ing it  was  found  to  be  a  most  available 
commodity  to  trade  with,  as  it  was  always 
acceptable  in  exchanges.  It  came  to  be 
preserved  for  this  very  purpose,  instead 
of  being  consumed.  As  soon  as  the  sup- 
ply was  sufficient  gold  became  the  uni- 
versal equivalent,  and  with  the  coining  of 
pieces  of  arbitrary  weight  and  fineness  by 
the  state,  as  a  guaranty  of  their  value,  it 
became  the  socially  recognized  money. 
At  present  the  world's  stock  of  gold  rep- 


40  THE  COLLAPSE  OF  CAPITALISM 

resents  nine  billions  of  dollars.  This 
leaves  far  behind  the  value  of  any  other 
single  commodity.  If  any  other  raw 
material  showed  a  similar  position  of  sup- 
ply relative  to  consumption  the  bottom 
would  be  knocked  out  of  its  price.  But 
the  mine  owners  do  not  have  to  pay  the 
least  attention  to  the  state  of  consump- 
tion. Their  product  is  not  intended  to 
serve  any  rational  use,  although  a  large 
part  of  it  does  find  such  use.  They  can 
go  on  serenely  producing  gold  at  a  profit 
for  a  purpose  the  existence  of  which  can- 
not be  considered  as  a  subject  for  com- 
pliments to  the  present  state  of  human 
intelligence.  We  think  that  without  this 
vast  stock  of  otherwise  futile  raw  material 
we  would  be  at  an  utter  loss  how  to  dis- 
tribute our  products  among  ourselves. 
Indeed,  this  stock  is  woefully  insufficient 
to  accomplish  that  function. 

In  1914  ofificial  data  assigned  to  gold  a 
narrowness  of  41/2  per  cent  of  the  total 
money  system  of  the  United  States,  the 
most  favored  country.  In  spite  of  the 
huge  transfers  of  gold  from  other  coun- 
tries during  the  war,  this  percentage  has 
shrunk  still  further.    Before  the  war  this 


FATAL  FLAW   OF  CAPITALISM  41 

narrowness  was  even  more  extreme  in 
other  countries,  especially  in  England.  As 
gold  is  the  sole  value  basis  of  the  entire 
monetary  system,  bank  deposits  and  notes 
being  in  the  last  analysis  redeemable  in 
gold,  it  is  not  to  be  wondered  at  that  for 
a  long  time  before  the  war  the  outflow  of 
even  moderate  quantities  of  gold  from  a 
country  caused  anxiety  to  its  financiers. 
But  since  the  war,  owing  to  the  enormous 
multiplication  of  substitutes  for  money 
(bank  notes  and  bank  deposits)  in  the 
belligerent  countries,  the  gold  situation 
has  reached  a  most  critical  stage,  and  the 
gold  basis  has  practically  been  abandoned 
in  all  of  them.  Yet  gold  is  naturally  the 
money  commodity — nothing  else  that  ex- 
ists on  this  planet,  or  that  ingenuity  could 
contrive,  can  replace  it  to  advantage. 
Gold  will  not  even  tolerate  any  other  gods 
beside  it.  All  efforts,  for  instance,  to 
maintain  a  definite  value  relation  with  it 
of  silver  have  failed. 

With  the  increase  of  production  by  cap- 
italism the  inadequacy  of  the  gold  supply 
began  to  make  itself  felt.  Certain  experi- 
ences led  to  the  discovery  that  tokens  of 
money  of  less  than  the  indicated  value,  or 


42  THE  COLLAPSE  OF  CAPITALISM 

even  of  no  value,  could  be  used  for  circu- 
lation. It  is  positively  not  true  that 
Mephistopheles  was  the  inventor  of  paper 
money,  as  Goethe  informs  us  in  the  sec- 
ond part  of  "Faust."  Anyhow,  the  state 
issues  slips  of  paper  on  which  various  de- 
nominations of  value  are  printed  and  by 
its  authority  declares  them  legal  tenders 
for  all  money  obligations.  Thus  they  are 
an  addition  to  the  gold. 

How  can  the  state  endow  worthless 
slips  of  paper  with  the  function  of 
money? 

Indeed,  the  state  is  powerless  to  do  this. 
It  cannot  endow  these  slips  with  all  the 
functions  of  money.  In  the  first  place, 
it  lies  in  the  very  conception  of  money, 
as  defined  by  Marx,  that  it  must  be  world 
money.  Tokens  are  only  current  within 
the  confines  of  the  state.  Internationally, 
only  gold  is  accepted.  Furthermore, 
paper  slips,  being  of  no  intrinsic  value 
themselves,  cannot  be  the  measure  of 
value  of  other  things.  They  also  cannot 
function  as  means  of  deferred  payment 
(credit),  because,  as  such,  a  money  ma- 
terial subject  to  the  least  possible  change 
of  value  is  required.    That  is  the  reason 


FATAL  FLAW  OF  CAPITALISM  43 

why  long-term  bonds  are  made  payable 
in  gold,  it  being  permitted  to  eliminate 
tokens  by  private  contract.  And  tokens 
are  subject  both  to  overvaluation  and  de- 
preciation.   In  fact,  both  have  occurred. 

The  only  function  of  which  tokens  are 
capable  is  that  of  means  of  circulation 
within  the  state,  and  even  that  only  up  to 
a  certain  limit  fixed  by  economic  law, 
which  is  mightier  than  the  state. 

Now,  the  question  might  be  narrowed 
to  this :  How  can  the  state  endow  the 
paper  slips  with  even  that  much  power? 

The  answer  is :  The  essential  thing  for 
the  alimentation  of  the  social  body  is  the 
circulation  of  the  privately  owned  com- 
modities. In  the  acts  of  exchange  money 
takes  only  a  fleeting  part.  After  having 
mediated  here,  it  moves  away  to  repeat 
its  offices  elsewhere.  In  this  ephemeral 
role  gold  may  be  replaced  by  a  symbol. 
But,  while  outside  of  circulation,  gold  al- 
ways retains  its  full  value  as  a  commod- 
ity, its  symbols  become  mere  worthless 
stuff. 

The  power  of  the  state  to  issue  papers 
as  symbols  of  gold  is  limited  by  the  ex- 
tent to  which  gold  itself  would  have  to 


44  THE  COLLAPSE  OF  CAPITALISM 

circulate.  If  issued  in  excess  of  the  eco- 
nomic law,  the  tokens  depreciate  rela- 
tively to  gold.  Nationally  they  become 
the  measure  of  value,  but  only  in  an  indi- 
rect vi^ay.  First,  the  total  value  of  the 
commodities  to  be  circulated  within  a 
given  time  by  the  tokens  determines  the 
value  of  the  total  issue  of  the  latter ;  then 
the  value  of  the  token  units  is  revealed 
as  an  aliquot  part  of  their  sum.  They 
lose  their  character  of  tokens  of  gold  and 
become  tokens  of  value  in  general,  indefi- 
nite and  varying  with  the  fluctuations  of 
the  total  value  of  the  commodities. 

There  is  only  one  way  of  positively 
knowing  whether  and  to  what  extent 
tokens  have  depreciated,  namely,  by  their 
value-relation  to  gold.  This  is  usually 
first  revealed  by  the  rates  for  foreign  ex- 
change. In  normal  time  this  item  in  the 
newspapers  is  most  uninteresting  to  the 
general  reader.  But  we  are  passing 
through  an  abnormal  economic  period, 
and  there  is  nothing  so  significant  as  the 
progressive  decline  of  foreign  currencies, 
as  quoted  in  American  money,  except 
where  prevented  by  artificial,  and  doubt- 
less temporary,  means.    The  latter  is  now 


FATAL  FLAW  OF  CAPITALISM  45 

the  case  with  the  pound  sterling.  This 
depreciation  of  foreign  exchanges  meas- 
ures, and  will  continue  to  measure  if  the 
war  cannot  be  ended  before  long,  the  dis- 
tance already  traveled,  and  still  to  be 
traveled,  to  the  complete  destruction  of 
money,  which  means  the  death  of  capi- 
talism. 

Thus  Russian  and  Austrian  paper 
money  can  be  seen  to  have  lost  80  per 
cent ;  German  and  Italian,  50  per  cent  of 
its  normal  value.  English  and  French 
exchange  has  been  sustained,  while  that 
was  possible,  by  giving  up  to  the  United 
States  all  their  available  foreign  invest- 
ments and  a  huge  mass  of  gold.  When  it 
became  impossible  to  keep  this  up  any 
longer,  America  was  confronted  with  the 
alternative  of  allowing  the  pound  sterling, 
the  world's  credit  denomination,  (and 
with  it  the  franc),  to  fall  suddenly  to  the 
level  of  other  European  currencies,  or  of 
furnishing  our  goods  without  pay. 

Our  capitalists  began  to  perceive  that  it 
had  been  a, mistake  to  gloat  over  the  pros- 
pect of  supplanting  the  impaired  pound 
by  the  intact  value  of  the  dollar  as  the 
world's  credit  denomination.     The  war 


46  THE   COLLAPSE   OF   CAPITALISM 

had  carried  things  too  far.  On  the  con- 
trary, they  began  to  realize  the  imperative 
necessity  of  sustaining  the  impaired 
pound.  It  was  a  supreme  occasion  for 
capitalist  solidarity.  The  effort  had  to  be 
made,  not  counting  billions,  to  stand 
united,  and  should  it  not  succeed  all  might 
as  well  go  down  united,  as  disunited  they 
surely  must.  Therefore,  our  government 
now  pays  for  the  goods  with  money 
borrowed  from  our  patriotic  citizens. 

There  have  been  many  instances  of 
great  depreciation  of  paper  money  and 
several  of  the  utter  extinction  of  its  value. 
All  these  instances  have  been  national  and 
occurred  prior  to  the  building  up  of  the 
present  much  more  complicated  financial 
mechanism.  For  these  reasons  they  re- 
mained without  permanent  ill  effects.  It 
will  be  altogether  different  when  the  in- 
herent tendency  of  the  monetary  system 
(which  I  will  take  up  in  due  course)  leads 
to  inevitable  and  progressive  depreciation 
simultaneously  in  all  countries. 

This  monetary  system  includes  not  only 
the  current  money  of  the  realm,  gold  and 
its  symbols,  but  a  kind  of  bookkeeping 
money  which  is  transferred  from  one  to 


FATAL  FLAW  OF   CAPITALISM  47 

the  other  by  means  of  written  orders, 
called  checks,  issued  on  institutions  called 
banks.  These  are  the  social  custodians  of 
and  bookkeepers  for  this  new  kind  of 
money.  It  is  a  development  of  the  second 
half  of  the  last  century.  In  Marx's  time 
it  was  in  considerable  use  in  England 
among  the  large  capitalists.  He  espied 
the  dangers  of  the  "clearing"  system,  saw 
that  it  was  apt  to  lead  to  panics;  but  it 
was  impossible  for  him  to  foresee  that 
bookkeeping  money,  then  in  its  infancy, 
was  to  be  the  indispensable  tool  for  engi- 
neering the  tremendous  rise  of  capitalism 
just  beginning,  and  that  this  infant  would 
grow  up  to  be  the  monster  that  must 
eventually  destroy  its  maker. 

What  has  so  far  been  said  about  gold 
and  paper  money  can  only  find  its  real  ap- 
plication when  brought  into  relation  with 
bookkeeping  or  bank  money.  Only  an  un- 
derstanding of  the  complete  subject  en- 
ables us  to  realize  the  present  precarious- 
ness  of  capitalism  and  to  determine  our 
attitude  toward  the  war.  There  has  taken 
place  since  Marx  an  important  economic 
development  which  has  placed  the  bank 
(money)  instead  of  the  industrial  capital- 


48  THE  COLLAPSE   OF   CAPITALISM 

ist  (commodity)  in  the  center  of  the  world 
stage. 

Socialists  unaware  of  this  development 
cannot  act  with  the  necessary  judgment 
in  the  present  world  crisis. 


CHAPTER  IV. 
Money  of  Account. 

IN  THE  year  1863,  about  the  time  when 
the  first  volume  of  Marx's  principal 
work  apeared  and  long  after  his  "Critique 
of  Political  Economy,"  which  treated 
mainly  of  the  problem  of  money,  the  de- 
posits of  all  the  banks  in  the  United  States 
were  $394,000,000.  Today  there  are  single 
banks  in  New  York  whose  deposits  are 
larger,  and  the  total  deposits  in  the  coun- 
try are  fast  approaching  the  thirty  thou- 
sand million  mark. 

This  is  a  new  kind  of  money  which  has 
added  itself,  not  only  in  this  country,  but 
in  all  capitalistic  countries,  to  the  metallic 
and  token  money  previously  used  almost 
exclusively.  Great  Britain  alone  had  al- 
ready developed  the  new  kind  of  money 
to  a  certain  extent  as  already  mentioned. 
Without  this  additional  money,  the  great 
industrial  advance  of  the  last  half  cen- 
tury would  have  been  impossible,  as  the 
metallic  money,  together  with  the  super- 
imposed tokens,  would  have  been  utterly 
49 


50  THE  COLLAPSE  OF  CAPITALISM 

insufficient  to  meet  the  rapidly  increasing 
requirements  of  circulation  and  of  de- 
ferred payment. 

What  is  the  true  inwardness  of  this  new 
money?  How  did  it  originate  and  how 
does  it  grow?  What  are  its  economic 
elifects? 

It  is  a  trite  statement  that  about  the 
middle  of  the  last  century  the  building 
of  railroads  and  the  launching  of  many 
new  industries  made  it  necessary  to  col- 
lect all  the  scattered  funds  which,  thus 
concentrated  by  the  banks,  were  put  at 
the  disposal  of  the  industrial  capitalists. 
But  that  sum,  as  we  see  by  the  example 
of  the  United  States,  was  not  very  large 
and  has,  in  fact,  been  cancelled  long  ago. 

The  real  origin  of  the  immense  total  of 
the  world's  bank  money,  or  Money  of  Ac- 
count, is  twofold,  producing  two  cate- 
gories of  such  money.  I  designate  them 
respectively : 

Money  of  account  originated  in  profit, 
and 

Money  of  account  originated  in  bank 
credit. 

In  practice  these  two  categories  of 
money  of  account  continually  flow  into 


MONEY   OF   ACCOUNT  51 

each  other,  become  indistinguishable  from 
certain  angles  and  would  be  inextricably 
mixed,  if  it  were  not  theoretically  pos- 
sible to  eliminate  and  cancel  the  last- 
named  category,  leaving  only  the  first 
named  to  continue  in  existence.  Such  a 
contingency,  however,  is  entirely  out  of 
the  question,  either  now  or  during  what- 
ever span  of  life  capitalism  may  still  have. 

In  the  analysis  of  the  whole  subject  it 
is,  however,  necessary  to  keep  each  cate- 
gory of  money  of  account  distinctly  sepa- 
rate as  far  as  possible,  merely  observing 
finally  their  manner  of  intermingling  and 
the  ever-recurring  cancellation  of  the 
bank-created  money  by  the  other  kind. 

We  shall  now  proceed  to  discuss  the 
profit-originated  money  of  account,  and 
the  reader  will  remember  that  in  doing  so 
we  separate  it  for  the  present  from  the 
existence  of  the  bank-made  kind. 

This  money  of  account,  then,  consists  of 
various  elements  of  which  the  ownership 
is  vested  in  the  several  kinds  of  banks  and 
in  their  depositors.  The  totality  repre- 
sents loan  capital  lent  or  to  be  lent  to 
others  by  the  banks.    These  elements  are : 

1.     The  banks'  capitalization  (which  is 


52  THE   COLLAPSE  OF   CAPITALISM 

very  far  from  being  identical  with  capital 
paid  in,  one  bank  in  New  York,  for  in- 
stance, having  distributed  a  stock  divi- 
dend of  1900  per  cent  at  one  swoop)  and 
their  surplus  accumulated  from  profit ; 

2.  A  certain  part  of  the  deposits,  less 
the  extent  to  which  they  may  be  covered 
by  cash  in  the  possession  of  the  banks. 
All  of  this  cash  came  from  the  depositors 
and  is  subject  to  their  call. 

It  is  already  apparent  that  the  banks  are 
the  social  monetary  agents  who  are  debt- 
ors and  creditors  for  equal  amounts.  They 
are  debtors  to  their  stockholders  and  de- 
positors, and  creditors  of  the  borrowers. 
But  it  is  their  relation  to  their  depositors 
which,  as  we  shall  see,  is  by  far  the  most 
important  and,  indeed,  constitutes  the 
most  immediate  menace  to  the  life  of  capi- 
talism. 

How  did  this  relation  arise  and  how  is 
it  that  it  grows  in  importance  all  the  time, 
as  evidenced  by  the  growing  deposits? 

These  daily  deposits  consist  now,  as 
they  have  for  a  number  of  years  of  about 
94  per  cent  checks  and  6  per  cent  current 
money.  Elaborate  investigation  by  the 
government  has  shown  that  the  daily  cash 


MONEY   OF   ACCOUNT  53 

deposits  practically  represent  the  circula- 
tion of  the  country's  payroll,  the  capital- 
ists and  farmers  paying  for  their  personal 
expenses  mainly  by  checks.  In  England 
check  payments  preponderate  to  a  similar 
degree  and  their  proportion  to  cash  pay- 
ments has  increased  fast  in  Germany  dur- 
ing the  last  ten  years. 

It  is  clear  that  if  the  daily  deposits  con- 
sisted exclusively  of  checks  it  would  be  a 
case  of  mere  transfers  from  one  deposit 
account  to  another  of  already  existing 
money  of  account.  The  sum  of  the  latter 
could  never  increase  in  the  least  by  such 
mere  transfers.  It  must  be,  therefore, 
that  the  secret  of  the  growth  lodges  in 
that  6  per  cent  of  current  money. 

This  suposition  is  strengthened  by  the 
certainty  that  at  the  beginning  of  modern 
banking  there  was  nothing  but  cash — no 
money  of  account  whatever  and  yet  this 
latter  germinated  and  grew.  And  while 
we  are  on  the  track  of  the  problem,  an- 
other fact  strikes  us:  This  immense 
amount  of  bank  money  once  did  not  exist 
and  now  does  as  an  addition  to  the  cash. 

Clearly  it  is  a  gain.  But  whose  gain? 
The  workers  own  only  a  small  portion 


54  THE  COLLAPSE  OF  CAPITALISM 

even  of  the  deposits  in  the  savings  banks ; 
the  middle  class  (mostly  farmers)  has  a 
larger  share  in  the  gain,  but  the  great 
bulk  belongs  to  the  capitalists.  That  it 
would  be  uselessly  complicating  the  sub- 
ject under  discussion  to  consider  the 
money  of  account  as  anything  else  but 
profit  is  shown  by  the  mere  fact  that  the 
one  federal  reserve  district  of  New  York 
out  of  the  12  districts,  has  one-third  of 
the  total  resources.  And,  besides,  New 
York  is  the  seat  of  the  great  trust  com- 
panies. 

Now,  let  us  watch  the  operation  of  the 
formative  process  of  the  new  money.  A 
retailer  deposits  the  cash  receipts  of  the 
day  in  his  bank.  Let  us  suppose  that  he 
at  once  remits  to  his  wholesale  purveyor 
an  order  on  his  bank  (check)  for  precisely 
the  goods  sold.  The  check  will  leave  a 
balance  on  his  account,  representing  his 
profit.  The  wholesaler,  following  suit, 
remits  a  check  to  the  manufacturer  of  a 
lesser  amount  than  that  received,  as  he 
also  retains  his  share  of  the  profit.  The 
manufacturer  in  his  turn  issues  his  check 
for  the  raw  material  consumed  and  draws 
out  of  the  bank  the  cash  for  the  wages 


MONEY   OF   ACCOUNT  55 

necessary  for  reproduction,  whereupon 
the  wages  start  their  next  rotation  with 
the  bank  again  as  a  point  of  passage. 

So  much  of  the  cash  as  the  manufac- 
turer draws  less  than  the  retailer  had  de- 
posited remains  for  a  time,  the  length  of 
which  is  capable  of  statistical  demonstra- 
tion, in  possession  of  the  bank,  subject  to 
call  by  any  depositor,  but  in  the  meantime 
constituting  the  bank's  "reserve."  At  the 
end  of  its  period  of  quiescence  in  the  bank 
the  balance  of  the  retailer's  cash  is  finally 
drawn  by  capitalists,  farmers,  etc.,  for 
personal  expenses. 

The  daily  repetition  of  this  process  and 
the  resultant  accumulation  of  the  profit 
sediments  have  in  the  course  of  time  made 
it  possible  to  dispense  entirely  with 
money  for  the  settlement  of  obligations 
between  capitalists  which  are  now  effect- 
ed exclusively  by  money  of  account, 
through  the  medium  of  the  check. 

Just  what  this  kind  of  money  is  may  not 
yet  be  quite  clear.  Suppose,  therefore, 
that  you  deposit  a  hundred  dollars  cash 
in  a  bank  today.  Tomorrow  this  cash  is 
paid  out  again  by  the  bank  to  any  apply- 
ing depositor  and  continues  its  existence 


56  THE  COLLAPSE  OF  CAPITALISM 

in  the  freedom  of  circulation.  At  the 
same  time  this  cash  has  left  behind  its 
shadow  on  your  deposit  account.  You 
also  are  still  the  owner  of  a  hundred  dol- 
lars (in  the  form  of  a  bank  deposit).  Ap- 
parently the  amount  of  existing  money 
has  doubled.  The  same  identical  hundred 
dollars  may  thus  give  rise  to  innumerable 
shadows  on  the  bank's  books.  This  won- 
derful exhibition  of  the  independence  of 
shadows  from  substance  is  made  possible 
only  by  the  social  faith  that  all  these 
shadows  can  be  resubstantiated. 

There  are,  of  course,  taking  place  con- 
stant reductions  of  the  size  of  the  shad- 
ows; otherwise  the  growth  of  the  money 
of  account  would  proceed  at  a  furious 
rate.  These  counteracting  factors  are  per- 
fectly capable  of  analysis,  but  this  would 
require  more  space  than  these  chapters 
permit.  Here,  therefore,  we  must  content 
ourselves  with  the  foregoing  suggestion 
of  the  positive  side  of  the  process  of 
growth. 

Notwithstanding  the  counteracting  fac- 
tors and  the  relatively  small  part  which 
cash  plays  in  the  daily  deposits,  the  vol- 
ume of  money  of  account  is  increasing 


MONEY   OF   ACCOUNT  57 

20  times  as  fast  as  the  volume  of  the  basic 
gold,  a  most  momentous  fact. 

It  seems  hardly  necessary  to  state  now 
explicitly  that  the  accumulation  of  shad- 
ows which  we  know  under  the  name  of 
bank  deposits  are  really  not  money  at  all, 
but  only  titles  to  money  which  the  banks, 
as  social  monetary  agents,  have  under- 
taken to  redeem.  They  are  the  banks* 
debt,  popularly  known  as  deposits  and 
transferred  from  one  to  the  other  as 
money.  These  titles,  once  created,  are 
indestructible,  except  by  the  theoretically 
normal,  but  practically  impossible,  pro- 
cess of  their  redemption  in  money,  or  by 
the  theoretically  abnormal,  but  only  pos- 
sible, process  of  the  failure  of  the  banks. 
Therefore,  the  volume  of  the  titles  ever 
increases  until  the  system  breaks  down 
under  the  weight  of  its  own  absurdity. 
The  root  of  it  lies  in  one  of  those  contra- 
dictions of  which  capitalism  is  so  full. 
The  banks  are  not  paid,  as  their  historical 
predecessors  were,  for  the  service  of  han- 
dling and  safekeeping  their  clients' 
money.  Their  income  is  derived  from  in- 
terest on  their  clients'  money  which  the 
banks  lend  out  for  their  own   account. 


58  THE   COLLAPSE   OF   CAPITALISM 

without  cancellation  of  the  title  to  the 
money  by  the  depositors  and  without 
their  legal  consent.  The  banks  are  sup- 
posed to  lend  out  the  money,  and  at  the 
same  time  not  to  lend  it  out,  but  have  it 
always  at  the  call  of  the  depositors. 

And,  now,  how  good  are  these  titles  to 
money?  The  disparity  in  the  rate  of  in- 
crease between  the  titles  to  money  and 
the  actual  money  (gold  and  tokens)  has 
already  been  pointed  out  above.  As  to 
the  final  outcome  the  reader  cannot  be  in 
any  doubt.  But  the  purpose  of  this  little 
book  is  to  show  how  far  the  destructive 
process  has  already  gone  in  the  normal 
way  in  the  United  States  and  how  far  it 
has  been  advanced  abnormally  in  Europe 
at  the  present  stage  of  the  war. 

As  I  show  in  my  book,  "Capital  To- 
day," the  banks  of  the  United  States  held 
in  1913  about  9  cents  for  every  dollar  they 
owed  their  depositors.  Since  then  condi- 
tions have  not  improved,  in  spite  of  the 
gold  imports  which  have  piled  up  in  this 
country  three-eighths  of  the  world's  gold. 
This  "reserve"  is  unequally  distributed, 
running  from  fairly  high  reserves  carried 
for  the  central  reserve  cities  down  to  i^ 


MONEY    OF   ACCOUNT  59 

per  cent  in  the  case  of  mutual  savings 
banks.  A  widespread  demand  for  money, 
especially  if  it  exceeded  the  aforemen- 
tioned 9  per  cent  of  the  deposits,  would 
be  impossible  to  satisfy,  except  with 
paper  money,  which  would  progressively 
depreciate  so  long  as  its  quantity 
increased. 

It  is  unnecessary  to  recall  here  that  the 
creation  of  tokens  is  limited  by  the  sorely 
deficient  supply  of  gold.  But  how  has 
society  been  able  to  get  along  with  such 
a  slow  increase  in  the  volume  of  current 
money  in  the  face  of  the  enormous  up- 
building of  money  of  account?  True,  the 
getting  along  was  not  always  smooth. 
RumbHngs  foreboding  the  greater  storm 
a-coming  have  occurred,  as  for  instance, 
the  panic  of  1907,  when  checks  went  to 
a  discount  of  5  per  cent  against  paper 
money  and  remained  at  a  discount  for  a 
month.  Normally,  however,  currency  is 
needed  only  for  the  country's  pay  roll, 
as  already  stated,  and  the  growth  of  the 
pay  roll  is  out  of  all  proportion  to  the 
profit  accumulation  in  money  form,  al- 
though  this  has   served  over  and   over 


60  THE  COLLAPSE  OF  CAPITALISM 

throughout  the  years  for  the  personal 
support  of  the  capitaHsts. 

Now,  this  accumulation  of  profits  in 
money  form  comes  into  conflict  with  the 
system  of  wages  for  which  a  relatively 
small  fund  only  is  required.  On  the  day 
when  the  capitalists  shall  desperately  seek 
to  realize  their  profits  in  actual  money, 
instead  of  titles  to  money  which  is  only 
a  nominal  realization,  then  the  contra- 
dictions of  capitalism  must  end  in  a  social 
catastrophe.  The  Marxian  conclusion 
regarding  the  final  outcome  of  these  con- 
tradictions, already  summarized  in  the 
second  chapter,  namely,  the  incompati- 
bility of  the  growing  means  of  production 
as  an  engine  for  profit,  with  the  payment 
of  mere  wages  to  the  workers,  finds  a  new 
and  directly  dangerous  version  in  the 
incompatibility  of  the  growing  volume  of 
titles  to  money  with  the  necessary  ex- 
istence of  only  enough  actual  money  for 
the  payment  and  circulation  of  mere 
wages. 

We  now  come  to  the  second  category 
of  money  of  account,  that  created  by  the 
banks. 

Every  loan   taken   up  by  a   depositor 


MONEY   OF   ACCOUNT  61 

immediately  becomes  a  deposit  by  being 
credited  to  his  account.  The  bank,  how- 
ever, must  have  a  "reserve"  against  such 
deposits,  the  proportion  being  fixed  by 
law  in  the  United  States,  but  in  England 
left  to  the  discretion  of  the  deposit  banks. 
Now,  when  an  intending  borrower  applies 
for  a  loan,  must  the  official  see  whether 
he  has  any  unemployed  deposits  on  hand? 
By  no  means.  All  he  needs  to  know  is 
whether  he  has  cash  on  hand  in  excess 
of  the  reserves  required  on  his  existing 
deposits.  Thus,  if  he  finds  that  he  has 
an  excess  of,  say,  $10,000,  he  may  lend 
$100,000.  The  lending  of  "money"  which 
is  so  utterly  a  fiction  of  the  mind  is  made 
possible  by  the  system  of  "clearing" 
which  was  already  distrusted  by  Marx. 
The  bank  official  knows  that  all  other 
banks  are  doing  the  same  thing;  that  all 
checks  drawn  against  such  loans  are 
likely  to  balance  approximately  at  the 
clearing  house  without  strain  on  any  one 
bank.  Thus  bank  A  makes  a  loan  to  Y, 
bank  B  to  Z,  each  of  $100,000.  Y's  check 
finds  deposit  in  B,  Z's  for  the  identical 
amount  in  A.  At  the  clearing  house  the 
checks  held  by  A  and   B   against   each 


62  THE   COLLAPSE  OF   CAPITALISM 

Other  are  "swapped."  The  two  banks 
have  lent  out  a  total  of  $200,000  without 
having  paid  a  cent.  That  banks  ordinarily 
cannot  fail  to  be  tempted  to  earn  interest 
on  money  so  purely  imaginary  is  self- 
evident. 

The  payees  of  the  two  checks  do  not 
know,  and  need  not  care,  whether  the 
remitter  borrowed  the  money  or  owned 
it.  For  them  they  represent  simply  the 
money  form  of  the  value  of  commodities 
they  sold.  When  they  deposit  the  checks 
the  amount  becomes  an  addition  to  the 
profit-originated  money  of  account,  not 
because  the  value  of  the  commodities  was 
all  profit,  but  because  the  value  consists 
partly  of  new  profit  and  partly  of  old 
profit  become  capital.  Profit-originated 
money  of  account  is  the  money  form  of 
part  of  the  accumulation  of  old  profits  to 
which  new  profits  in  money  form  are 
constantly  being  added. 

As  a  matter  of  fact,  however,  the  checks 
given  by  the  borrowers  represent  no 
value,  no  previously  performed  labor. 
The  money  is  purely  fictitious,  created  by 
the  banks  out  of  nothing.  As  it  has 
nevertheless   become   profit-originated 


MONEY  OF  ACCOUNT  63 

money  of  account  when  it  came  into  pos- 
session of  the  sellers  of  the  commodities, 
having  been  metamorphosed  into  such 
by  transfer  from  the  bank-made  credit 
money,  there  exists  now  evidently  an 
inflation  of  the  profit-originated  category 
which  cannot  be  otherwise  than  tem- 
porary and  must  needs  be  removed.  The 
deflation  is  effected  at  maturity  of  the 
loans  by  their  amounts  being  charged  to 
the  deposit  accounts  of  the  borrowers. 
The  inflation  of  profit-originated  money 
of  account  on  one  set  of  deposit  accounts, 
that  of  the  sellers,  is  made  up  by  can- 
celling accumulated  profits  on  another 
set  of  deposit  accounts,  that  of  the  bor- 
rowers. The  mortgage  on  future  profits 
is  satisfied,  and  the  bank-made  credit 
money  ceases  to  exist.  But  other  such 
fictitious  deposits  take  the  place  of  the 
liquidated  ones  in  ever-increasing  volume. 
It  is  the  expectation  of  the  capitalist 
class  and  its  retainers,  the  university  po- 
litical economists  of  our  time,  that  the 
borrowings  of  fictitious  money,  which  we 
call  bank-made  credit  money,  will  be  re- 
deemed forever  by  actual  future  profits 
in  the  form  of  profit-originated  money  of 


64  THE  COLLAPSE  OF  CAPITALISM 

account,  and  they  are  under  a  vague  im- 
pression that  there  is  no  natural  limit  of 
the  figures  which  the  latter  may  reach. 
This  expectation  is  quite  nebulous  and  far 
from  assuming  the  definite  terms  in  which 
we  describe  the  process.  They  do  not 
understand  their  own  system,  and  they 
have  an  instinctive  aversion  to  a  scientific 
analysis  of  it.  Philosophic  economics  is 
good  enough  for  them. 

Developing  capitalism  needs  ever  more 
money  and  cannot  do  without  the  bank- 
made  kind.  Billions  of  it  have  been  cre- 
ated here  lately  on  the  basis  of  the  influx 
of  gold  and  the  legal  reduction  of  the 
reserve  requirements.  The  European  war 
has  been  financed  mainly  with  just  this 
fictitious  money.  The  dangers  lurking 
behind  the  money  of  account,  especially 
and  immediately  of  the  bank-made  kind, 
for  the  world's  banks,  therefore  for  the 
world's  money  which  they  represent, 
therefore  for  capitalism  itself,  are  realized 
by  the  best  experts  in  the  service  of  the 
haute  finance,  although  given  cautious 
expression  publicly,  and  by  the  big  cap- 
italists themselves,  judging  by  their  ac- 
tions.    Pay  day  must  come,  and  with  it 


MONEY   OF   ACCOUNT  65 

the  revelation  of  the  social  insolvency 
which  will  form  the  subject  of  my  next 
chapter. 


CHAPTER  V. 
The  Social  Insolvency. 

LET  us  recall  these  salient  facts :  That 
mere  titles  to  money  have  come  to 
take  the  place  of  actual  money  among  the 
capitalists ;  that  the  money  left  by  the 
people  at  the  disposal  of  the  banks  is  now 
quite  inconsiderable,  compared  with  the 
volume  of  the  titles ;  and  that,  neverthe- 
less, the  volume  of  the  titles  is  growing 
(at  least  in  the  United  States)  twenty 
times  as  fast  as  the  basic  gold. 

Where  this  absurdity  must  lead  to  can 
be  no  secret  to  the  financial  leaders.  They 
admit  that  no  financial  legislation  can 
make  the  system  intrinsically  sound.  So 
they  use  their  technical  knowledge  to 
devise  contrivances  calculated  to  keep  the 
machine  going  for  some  years  longer, 
hoping  that,  meantime,  something  may 
turn  up  to  save  the  situation  once  more. 
That  is  all  there  is  behind  the  federal 
reserve  act  and  the  amendments  recently 
added  to  it.  Previous  to  these  enactments 
the  safety  of  the  banks  had  been  sought 
66 


THE    SOCIAL    INSOLVENCY  67 

in  large  reserves.  Under  the  old  law  New- 
York,  Chicago  and  St.  Louis  national 
banks,  for  instance,  had  to  carry  25  per 
cent  cash  against  their  demand  deposits. 
The  new  reserve  system  makes  it  legally 
possible  to  reduce  this  reserve  to  less  than 
three  and  a  half  per  cent,  as  shown  by 
Theo.  H.  Price  in  "Outlook,"  1917,  p.  477. 

It  should  be  understood  that  banks 
have  no  power  to  increase  or  decrease  by 
a  dollar  the  amount  of  money  in  their 
vaults.  This  power  rests  only  with  the 
depositors  to  whom  the  money  belongs  in 
reality,  though  not  nominally.  They  can 
deposit  or  draw  as  much  or  as  little  as 
they  please.  All  the  banks  can  do  is  to 
limit  the  sum  of  their  loans  which,  as  we 
have  seen,  immediately  become  deposits, 
so  as  to  accord  with  the  cash  in  their 
possession. 

The  Federal  Reserve  legislation  recog- 
nizes the  fact  that  money  of  account 
cannot  rely  for  safety  on  large  reserves. 
New  York  banks  have  been  forced  to  sus- 
pend in  spite  of  their  25  per  cent  reserve. 
The  hope  for  safety  for  a  while  longer  lies 
rather  in  the  localization  of  "runs"  and 
the  prevention  of  the  spread  of  the  alarm. 


68  THE  COLLAPSE  OF  CAPITALISM 

The  financial  leaders  know  that  the  whole 
financial  mechanism  rests  on  nothing  but 
faith.  They  do  not  say:  "Come,  convince 
yourselves  of  the  reasonableness  of  our 
system ;  use  your  intellect !"  Instead, 
they  merely  say:  "Have  faith!"  Other 
gentlemen  before  them  have  appealed  to 
faith  until  the  accumulation  of  evidence 
against  it  resulted  in  its  sudden  over- 
throw. Faith  was  dissolved  into  nothing- 
ness. 

There  never  has  been  a  solvent  bank. 
It  is  the  normal  condition  of  banks  to  be 
insolvent. 

The  insolvency  of  the  banks  involves 
the  social  insolvency.  The  latter  refers 
not  merely  to  the  public  debts,  now  so 
great,  nor  even  merely  to  the  entire  class 
of  negotiable  titles  to  revenue,  such  as 
bonds  and  stocks,  nor  even  all  money 
obligations — it  includes  the  impossibility 
of  paying  for  raw  materials  or  wages. 
The  gradual  undermining  and  sudden 
collapse  of  the  whole  world's  banks  de- 
stroys the  great  bulk  of  the  money  so  in- 
dispensable under  capitalism.  Only  the 
bulk?  Is  it  thinkable  for  a  moment  that 
when  production  is  paralyzed,  and  before 


THE    SOCIAL    INSOLVENCY  69 

it  can  be  resumed  on  a  completely  social 
basis — the  only  basis  then  possible — that 
the  necessaries  of  life  will  be  at  the  ex- 
clusive disposal  of  those  who  happen  to 
be  so  fortunate  as  to  have  some  pocket 
money?  Of  course  not.  Gold  and  tokens 
will  be  outlawed  instantly.  The  hour  of 
money  has  struck. 

All  this  must  be  clear  to  anybody  who 
gives  the  subject  any  serious  attention. 
That  any  self-contradictory  system  must 
come  to  grief  some  time  is  obvious 
enough.  But  the  great  rabble  among  the 
capitalists  think  the  game  can  go  on  "for- 
ever," so  far  as  the  present  generation  is 
concerned.  All  that  is  necessary  is  "con- 
fidence"— such  a  trifling  and  cheap  thing. 
It  is  the  task  of  Socialist  economics  (and 
since  Marx  that  is  strictly  equivalent  to 
scientific  economics)  to  discover  the  proc- 
esses which  must  bring  the  durability  of 
the  contradictory  monetary  mechanism 
within  certain  conceivable  limits  of  time 
in  spite  of  faith  or  "confidence."  There 
must  be  processes  which  mechanically 
destroy  this  faith  and  vindicate  the 
materialistic  conception  of  history. 

We   know   that   the   primary   trouble 


70  THE  COLLAPSE  OF  CAPITALISM 

arises  from  the  scarcity  of  gold,  which 
has  become  insufficient  in  our  time  to 
perform  its  function  of  means  of  circula- 
tion and  necessitated  the  use  of  imaginary 
money.  Here  we  touch  the  original  and 
mortal  contradiction  inherent  in  money, 
which  has  disclosed  itself  since  Marx. 

Suppose  that  some  day  a  new  source 
of  supply  of  gold  were  discovered,  making 
it  possible  to  redeem  all  the  world's 
tokens  and  bank  deposits.  This  is  by  no 
means  an  impossible  supposition,  espe- 
cially in  view  of  the  long  lease  of  life 
vouchsafed  to  capitalism  by  the  econom- 
ics of  half  a  century  ago.  Today  the 
happening  of  such  an  event  would  be  the 
death  stroke  of  capitalism.  Gold  would 
then  be  capable  of  fulfilling  its  function 
of  means  of  circulation,  but  unable  to 
function  as  measure  of  value,  which  func- 
tion abhors  abundance.  Such  a  flood  of 
gold  could  only  be  the  result  of  an  enor- 
mously cheapened  cost  of  production,  and 
the  efifect  of  the  low  value  of  gold  upon 
capitalism  would  be  exactly  the  same  as 
that  brought  about  by  the  collapse  of  the 
banks.  Money  would  be  destroyed  in 
either  case. 


THE   SOCIAL   INSOLVENCY  71 

But  the  present  dilemma  is  not  the 
overabundance,  but  the  scarcity  of  gold 
and  the  necessity  of  making  up  the  defi- 
ciency with  symbols  of  and  titles  to  gold. 

These  contrivances  do  not  have  the 
effect  of  lowering  the  value  of  gold,  as  its 
overabundance  would.  On  the  other 
hand,  the  substitutes  for  gold  are  subject 
to  depreciation,  as  we  have  seen  in  a  pre- 
vious chapter.  This  refers  directly  only 
to  paper  money.  But,  inasmuch  as  de- 
posits, which  legally  are  debts  like  any 
others,  may  be  paid  with  legal  tender 
tokens,  any  depreciation  of  these  affects 
the  value  of  the  deposits  to  exactly  the 
same  degree.  Therefore,  the  depreciation 
of  European  currencies  referred  to  previ- 
ously includes  at  the  same  time  a  corre- 
sponding diminution  of  the  value  of  the 
bank  deposits. 

The  problem  of  the  breakdown  of 
money  of  account  within  a  conceivable 
time  thus  reduces  itself  to  a  search  for 
factors  tending  to  bring  about  the  pro- 
gressive depreciation  of  paper  money  in 
the  countries  with  a  developed  banking 
system.  Meanwhile  we  leave  the  depos- 
itors  in   the   undisturbed   possession   of 


72  THE   COLLAPSE  OF   CAPITALISM 

their  faith,  although  it  would  not  be  sur- 
prising if  this  were  rudely  shaken  at  any 
moment. 

It  is  plain  from  the  start  that  the  prin- 
cipal cause  which  brought  about  the 
introduction  of  paper  money,  namely,  the 
inadequacy  of  the  gold  supply  for  han- 
dling the  increasing  value  of  the  stock  of 
commodities,  must  also  continue  to  bring 
about  an  evergrowing  amount  of  that 
paper  money,  becoming  ever  more  dis- 
proportionate to  the  slowly  growing  stock 
of  gold. 

Such,  however,  is  only  the  general 
analogy  of  cause  and  effect  between  the 
early  years  of  paper  money  and  now.  But 
one  important  difference  has  arisen.  For- 
merly the  paper  money  was  simply  an 
addition  to  the  gold  in  circulation ;  but 
now  money  is  needed,  not  only  for  circu- 
lation, but  equally  to  repose  in  bank 
vaults  as  reserve  against  the  new  fangled 
money  of  account.  It  is  true,  of  course, 
that  on  the  other  hand  circulation  is  now 
helped  out  by  checks.  If  these  did  not 
render  aid,  the  amount  of  tokens  would 
have  to  be  that  much  larger.  The  latter 
would  be  exposed  to  the  danger  of  depre- 


THE    SOCIAL    INSOLVENCY  73 

elation  in  case  of  shrinkage  of  the  value 
or  price  of  the  commodities  to  be  circu- 
lated. In  1908,  for  instance,  the  money 
turnover  in  this  country  was  30  per  cent 
less  than  in  1906. 

It  is  a  noteworthy  fact  that  prior  to 
the  establishment  of  the  federal  reserve 
the  American  people  left  generally  nearly 
half  of  their  money  in  banks.  For  the 
latter  that  was  equivalent  to  an  accumu- 
lation of  the  daily  cash  deposits  of  29 
consecutive  days  without  any  with- 
drawals. In  other  words,  the  bank  "re- 
serves" could  be  considered  formally  as 
the  initial  cash  receipts  for  29  days,  after 
which  the  daily  receipts  are  balanced  by 
the  daily  disbursements.  The  earlier  de- 
positors may  be  formally  considered  as 
beginning  to  draw  as  much  cash  as  the 
later  ones  deposit.  Of  course,  the  money 
has  to  stay  in  the  bank  for  some  time, 
namely,  the  difference  of  time  between 
the  average  "banking"  of  the  wages  of  a 
theoretical  common  wage  period  and  the 
withdrawing  again  of  the  money  for 
another  national  payroll. 

The  common  wage  period  is  estimated 
by    Irving    Fisher,    as    quoted    and    ac- 


74  THE  COLLAPSE  OF  CAPITALISM 

cepted  in  a  report  of  theAldrich  Monetary 
Commission,  at  20  days.  Therefore,  the 
wages  are  spent  and  "banked"  on  an 
average  in  10  days.  That  leaves  10 
days  for  the  money  to  stay  in  the  banks 
before  the  next  pay  day  comes  around. 
But  it  is  necessary  to  draw  the  money  the 
day  before  pay  day  in  order  to  prepare 
the  payroll.  Consequently,  nine  days  is 
all  the  time  that  the  money  has  to  stay 
in  the  banks  in  the  regular  course  of  cir- 
culation, instead  of  20  days.  This  shows 
that,  so  far  as  the  active  circulation  is 
concerned,  there  was  no  technical  neces- 
sity of  there  being  then  left  in  the  custody 
of  the  banks  more  than  $500,000,000  cash, 
instead  of  the  $1,500,000,000  they  had. 
Evidently  there  existed  a  billion  more 
tokens  than  circulation  needed.  Against 
this  excess  we  find  an  issue  of  notes  of 
national  banks,  clearly  made  for  no  other 
purpose  than  to  provide  additional  re- 
serves against  the  growing  deposits. 
For  although,  naturally,  the  banks  cannot 
print  notes,  exchange  them  with  each 
other  and  then  claim  that  they  have  more 
money  than  before,  singly  or  as  a  system, 
they  can  pass  them  ofif  to  the  public,  col- 


THE    SOCIAL    INSOLVENCY  75 

lecting  and  retaining  instead  the  gold 
certificates  (which  are  storage  receipts 
for  actual  gold)  and  other  legal  tenders 
theretofore  in  general  circulation. 

Nevertheless,  the  time  had  not  yet  come 
for  the  token  to  depreciate,  because  there 
still  was  a  preponderance  of  gold  over 
tokens,  and  some  gold  had,  therefore,  to 
be  in  circulation  all  the  time.  That  stead- 
ies the  values  of  the  tokens.  But  the  ten- 
dency to  their  depreciation  is  irresistible. 
Production  expands  more  or  less  steadily. 
Sometimes  it  is  intensive;  prices  of  com- 
modities rise,  as  do  those  of  land  and  secu- 
rities. More  currency  is  needed  for  wages 
and  general  spending.  Depositors  draw 
more  from  the  banks.  The  so-called  "re- 
serves" shrink,  which  is  only  another 
way  of  saying  that  the  depositors,  instead 
of  leaving  their  money  in  the  banks  29 
days,  leave  it  only  28,  27,  etc.,  days.  In 
still  another  way  this  can  be  expressed 
as  the  increasing  rapidity  of  the  circula- 
tion of  money  until  a  point  is  reached 
when  money  is  doing  its  maximum  of 
work.  Then  the  issue  of  more  paper 
money  becomes   imperative. 

The   foregoing   can   be   illustrated  by 


76  THE   COLLAPSE  OF   CAPITALISM 

the  relative  increase  from  1898  to  1914  of 
the  money  in  active  circulation  (prac- 
tically wages)  and  of  the  money  in  banks 
as  reserves  against  deposits  (which  are 
in  the  long  run  all  profit).  The  former 
was  54  per  cent,  the  latter  137  per  cent. 

This  would  be  all  very  fine  for  capital- 
ism, if  the  thing  did  not  run  up  against 
a  stone  wall  beyond  which  it  cannot  go. 
The  paper  depreciates.  It  is  in  our  time 
no  longer  issued  by  the  governments  of 
the  leading  capitalist  countries,  save 
under  very  exceptional  circumstances, 
but  by  semi-governmental  institutions, 
called  national  banks  in  Europe  and  the 
Federal  Reserve  Bank  here.  They  are 
central  banks  for  the  individual  banks 
whose  reserves  they  hold.  It  is  a  unified 
system  of  banking  for  each  country. 

Can  two  banks  print  bank  notes,  each 
for  a  million,  exchange  them  with  each 
other,  and  then  claim  that  they  now  have 
jointly  two  millions  more  money  than 
before?  Hardly ;  and  no  more  can  a  whole 
national  system  perform  a  similar  trick. 
What  the  banks  can  do  is  to  pass  their 
notes  to  depositors  willing  to  take  them 
and  retain  as  money  reserves  all  the  geld 


THE    SOCIAL    INSOLVENCY  '7^ 

coming  their  way.  But  in  due  time  they 
strike  a  snag.  When  the  channels  of  cir- 
culation are  filled  with  notes  to  the  entire 
exclusion  of  gold  then,  in  the  event  of 
business  depression  or  the  necessity  of 
gold  shipments,  depreciation  knocks  at 
the  door,  unless  the  banks  give  up  gold 
and  keep  their  notes,  which  latter,  of 
course,  cannot  count  as  reserves  at  all. 
This  alternative,  either  of  opening  the 
door  to  depreciation  by  clinging  to  the 
gold  or  of  reducing  their  legal  or  volun- 
tary reserves,  will  present  itself  to  the 
banks  again  and  again,  and  must  end 
with  the  confessed  insolvency  of  all  the 
banks  and  the  destruction  of  money. 

To  avoid  the  clearly  dangerous  aug- 
mentation of  paper  money,  why  could 
not  capitalist  society  restrict  the  circu- 
lating medium  so  that  each  unit  of  gold, 
or  its  symbol,  can  buy  a  greater  com- 
modity value,  thus  counteracting  the 
increase  of  the  total  value  of  the  stock 
of  commodities  as  expressed  in  gold,  or 
preventing  any  continued  tendency  of 
prices  to  rise? 

Such  an  idea  implies  the  overvaluation 
of  gold  and  would  have  to  overcome  the 


78  THE   COLLAPSE  OF   CAPITALISM 

desperate  resistance  of  the  debtor  class, 
less  interested  than  the  creditor  class  in 
the  maintenance  of  capitalism.  The  idea, 
further,  would  have  to  be  reconciled  with 
the  prospect  of  the  concentration  of  an 
inordinate  and  constantly  growing  share 
of  the  world's  wealth  in  the  hands  of  the 
owners  of  gold  mines.  But  far  more  im- 
portant than  these  considerations  is  the 
fact  that  the  circulation  requirement, 
though  it  thus  may  be  impeded,  cannot 
be  permanently  confined.  The  restriction 
of  the  issue  of  paper  money  to  a  perma- 
nent proportion  with  the  gold  is  incom- 
patible with  capitalism,  whose  expansion 
is  irresistible  as  a  result  of  competition. 
In  time  it  would  become  impossible  to 
circulate  such  commodities  as  are  below 
a  certain  minimum  of  value.  At  the  same 
time  bank  deposits  would  continue  to 
grow  from  the  inevitable  profit  accumu- 
lation. Instead  of  receiving  additional 
cash  for  their  reserves,  the  banks  would 
see  them  practically  exhausted.  Reach- 
ing that  point  does  not  exhaust  the  de- 
mands for  money  by  the  depositors  whose 
needs  are  imperative.  Contraction  is  not 
workable  for  any  length  of  time. 


THE    SOCIAL    INSOLVENCY  79 

A  longer  lease  of  life  for  the  things  that 
are  is  promised  by  permitting  inflation, 
as  the  need  of  it  arises.  Inflation,  there- 
fore, it  shall  be.  However,  a  merely  tran- 
sitional form  of  society  cannot  be  made 
permanent  by  following  one  policy  any 
more  than  another.  As  all  roads  lead  to 
Rome,  inflation  leads  in  the  end  to  exactly 
the  same  point  as  contraction — to  the 
social  insolvency. 

For  a  shrinkage  in  the  value  of  paper 
money  (and,  therefore,  of  money  of  ac- 
count) cannot  be  made  good  by  printing 
more  paper  money.  No  matter  how 
much  is  printed,  the  value  of  the  sum  of 
the  tokens  is  not  increased  one  iota,  while 
the  value  of  each  unit  is  diminished. 
Overwhelming  necessity  has,  neverthe- 
less, compelled  Europe  since  the  war  to 
have  recourse  to  this  ruinous  proceeding 
on  an  immense  scale,  considering  the 
shortness  of  the  period.  Yet  the  same 
thing  was  bound  to  happen,  though,  no 
doubt,  more  gradually,  in  the  perfectly 
normal  course  of  monetary  development. 

As  the  depreciation  progresses  the 
amount  of  the  daily  deposits  of  paper 
money  increases.     The    passage    of  this 


80  THE   COLLAPSE  OF   CAPITALISM 

money  through  the  banks  accelerates  the 
growth  of  money  of  account.  The  swell- 
ing of  the  deposits  calls  for  a  relative  in- 
crease of  the  reserves.  But  the  additional 
reserves  cannot  come  from  the  increased 
deposits  of  the  depreciated  money.  Under 
the  regime  of  gold,  when  this  is  the 
measure  of  value,  the  total  price  of  the 
commodities  in  circulation  calls  only  for 
a  definite  maximum  of  money.  Any  ex~ 
isting  surplus  of  gold  or  symbols  thereof 
find  lodgment  in  bank  vaults,  and  can 
stay  there  for  an  indefinite  time. 

But  it  is  otherwise  under  the  regime  of 
depreciated  paper.  The  issue  of  tokens 
has  been  called  forth  by  the  needs  of 
circulation,  but  once  they  are  issued  in 
excess  of  the  economic  law,  they  will  not 
retire  to  bank  vaults  longer  than  tech- 
nically necessary.  Their  aggregate  value 
is  determined  by  the  aggregate  value  of 
the  commodities  in  circulation ;  therefore, 
all  the  units  of  the  token  issue  are  at  all 
times  needed  in  circulation.  Granting 
that  the  gold  basis  has  been  frankly 
abandoned,  and  that  the  banks  consider 
their  own  notes,  or  promises  to  pay  (but 
pay  with  what?)  as  money,  it  is,  never- 


THE   SOCIAL   INSOLVENCY  81 

theless,  plain  that  the  gain  of  reserves  by 
the  banks  must  be  small  relatively  to  the 
growth  of  deposits. 

On  the  other  hand,  the  strain  on  the 
banks  becomes  more  severe  constantly. 
While  the  reserves  grow  little,  the  de- 
posits grow  much,  and,  naturally,  cause  a 
growing  demand  on  the  banks  for  cash. 
How  are  these  to  meet  the  situation? 
There  are  two  ways. 

One  is  to  pass  new  paper  money  out 
of  the  paying  teller's  window.  This  in- 
creases prices,  which  necessitates  the 
issue  of  still  more  paper.  It  is  now  the 
method  adopted  by  Europe  in  grandiose 
style  since  the  war.  But  it  is  a  vicious 
circle,  from  which  there  is  no  escape  until 
the  value  of  money  is  destroyed  in  due 
course  of  the  process,  or  this  process  is 
ended  deliberately  by  the  dethronement 
of  money  and  the  establishment  of  com- 
plete Socialism. 

The  other  way  is  for  the  banks  to  re- 
duce their  loans  and  thereby  their 
"deposits."  This  is,  likewise,  a  road  of 
thorns.  It  is  clear  that  if  tokens  have 
depreciated,  say  50  per  cent,  the  borrow- 
ing world  needs  to  double  its  borrowings 


82  THE   COLLAPSE  OF   CAPITALISM 

to  continue  the  industries  on  the  estab- 
lished scale.  On  the  contrary,  it  now  has 
to  face  the  withdrawal  of  the  loans.  To 
the  extent  that  productive  and  mercantile 
capitalists  can  manage  to  pay  off  their 
bank  debts  they  must  reduce  their  opera- 
tions. By  this  reduction  of  money  capital 
alone,  aside  from  other  difficulties,  great 
numbers  of  workers  are  forced  into  idle- 
ness. 

But  many  other  industrial  capitalists 
are  too  involved  to  pay  up.  Their  entire 
business  is  founded  on  the  expectation  of 
material  support  by  bank  loans.  Already 
the  rising  prices  strain  their  capital. 
Many  failures  of  industrial  capitalists  of 
this  caliber  wotild  add  greatly  to  the 
already  existing  unemployment.  But, 
what  is  much  more  important  in  eco- 
nomics, these  failures  would  go  close  to 
the  heart  of  many  banks,  perhaps  of  all. 
Many  banks  have  outstanding  loans  to 
the  tune  of  10  or  more  times  their  capital 
and  surplus  (one  very  large  bank  in  Eng- 
land even  20  times),  so  that  the  loss  of  10 
per  cent  and  even  less  of  their  outstand- 
ings loans  would  wipe  out  both  their 
capital    and    surplus    and    destroy    the 


THE    SOCIAL    INSOLVENCY  83 

"solvency"  of  such  banks.  A  loss  of  25 
per  cent  would  strike  fatally  all  banks.  In 
stating  these  percentages  I  leave  out  of 
consideration  that  banks  are  heavy  cred- 
itors of  each  other,  and  as  such  creditors 
may  be  involved  also  in  losses  through 
the  failure  of  other  banks. 

This  book  does  not  concern  itself 
with  states  of  mind  which  may  be  pro- 
duced by  changing  conditions.  I  am 
well  aware  of  the  possibility  that  loss  of 
faith  in  the  social  solvency  may  become 
epidemic  and  result  in  an  universal  as- 
sault on  the  banks,  or  that  the  workers 
may  be  fired  to  revolutionary  action 
through  their  sufferings.  My  object,  how- 
ever, has  been  to  show  the  trend  of  recent 
economic  development,  of  which  social 
bankruptcy,  followed  by  complete  Social- 
ism, is  the  inevitable  outcome,  regardless 
of  states  of  mind.  In  our  discussions  we 
have  come  across  several  phenomena 
which  show  that  the  process  is  well  under 
way.  How  near  we  may  be  to  the  catas- 
trophe will  be  the  subject  of  the  next 
chapter. 


CHAPTER  VI. 
The  Money  Source  for  the  War  Loans. 

THE   New  York  Times  of  August  3, 
1917,  contained  the  following  special 
cable  from  London : 

New  Europe,  a  weekly  publication  possessing 
special  sources  of  continental  information 
.  .  .  says:  "We  learn  from  an  unimpeach- 
able source  that  a  secret  conference  of  inter- 
national financiers,  which  recently  took  place 
in  Switzerland,  was  inspired  by  somewhat  dif- 
ferent motives  from  those  which  were  ascribed 
to  it  at  the  time.  Acting  purely  in  the  interests 
of  the  great  capitalists  of  all  countries,  it 
aimed,  above  all,  at  an  immediate  peace,  such 
as  would  arrest  the  growth  of  international 
Socialism  and  the  rising  tide  of  revolution 
throughout  Europe.  The  gathering  sought  to 
forestall  the  holding  of  the  Stockholm  confer- 
ence by  a  direct  arrangement  between  the 
belligerents  in  which  national  claims  would 
be  entirely  subordinated  to  consideration  of 
world-wide  finance." 

And  so  it  is  the  international  financiers 
who,  of  all  capitalistic  elements,  are  the 
first  to  perceive  the  necessity  of  attempt- 
ing to  call  ofif  the  dogs  of  war.  Since 
when  have  these  gentry  become  distin- 
guished as  having  the  clearest  vision  of 
the    menace   of   international   Socialism? 


MONEY   SOURCE  FOR   WAR   LOANS        85 

Before  the  war  there  was  no  set  of  men 
more  incapable  of  comprehending  the 
economic  trend,  except,  perhaps,  the  pro- 
fessors of  political  economy.  Socialism 
was  beneath  their  notice — too  absurd  to 
give  a  minute  of  their  time  to.  And  now, 
instead  of  delegating  their  trained  poli- 
ticians or  other  retainers,  they  must  meet 
personally  for  consultation,  lest  in  fight- 
ing for  "national  claims"  all  of  "world- 
wide finance"  become  engulfed  in  one 
whirlpool. 

Now,  why  have  the  international  finan- 
ciers become  afraid  of  the  approach  of 
international   Socialism?    What  do  they 


see 


Immediately  there  comes  to  the  mind 
of  most  people  the  immensity  of  the  war 
debts  and  the  oft  expressed,  though  un- 
proved, idea  that  the  interest  cannot  be 
paid ;  wherefore  the  conclusion  is  near 
at  hand  that  what  the  financiers  dread  is 
repudiation.  Now,  repudiation  may  be 
partial  or  complete.  The  rate  of  interest 
might  possibly  be  reduced  from  5  to  4 
per  cent  or  be  cut  in  half,  reducing  the 
selling  value  of  the  bonds  proportionately. 
But  that  complete  repudiation  should  be 


86  THE   COLLAPSE  OF   CAPITALISM 

necessary  is  fanciful,  to  say  the  least. 
Even  if  repudiation  became  necessary,  but 
involved  nothing  more  than  depriving 
private  bondholders  of  part,  or  even  the 
whole,  of  the  revenue  which  they  had 
purchased,  it  would  be  hard  to  explain 
why  this  must  necessarily  result  in  inter- 
national Socialism.  In  fact,  as  the  case 
stands  today,  there  is  no  reason  why  the 
interest  cannot  be  paid  in  full,  as  agreed. 
It  is  as  easy  to  pay  five  billions  annually 
with  money  depreciated  50  per  cent  as  it 
would  have  been  to  pay  half  that  sum 
with  the  money  of  full  value  of  pre-war 
time.  Looking  at  the  matter  in  this  light, 
it  still  remains  true  that  the  former  load 
of  interest  of  one  billion  dollars  has  been 
increased  by  an  additional  two  and  a  half 
billions.  But  this  addition  might  be  made 
good,  in  the  main,  by  reducing  the  mili- 
tary budgets  currently  reported  to  have 
stood  at  two  billions  before  the  war. 
That  this  might  be  done  is  a  reasonable 
supposition,  as  the  countries  of  Europe 
will  be  too  exhausted  for  many  years  to 
contemplate  and  prepare  for  another 
physical  trial  of  conclusions.  Also,  higher 
tax'^tion   than  before  the  war  might  be 


MONEY   SOURCE   FOR   WAR   LOANS        87 

resorted  to.  Although  the  capitalists 
grumbled  much  then,  as  a  matter  of 
course,  their  eyes  have  since  been  opened 
wide  as  to  what  taxation  might  really 
mean.  Great  Britain,  alone,  during  the 
fiscal  year  ended  March  31,  1917,  raised 
by  taxation  two  and  a  half  billion  dollars, 
figuring  the  British  pound  as  being  worth 
about  par,  which,  however,  is  undoubt- 
edly far  from  being  the  fact,  in  spite  of 
the  artificial  rate  of  exchange. 

If  the  international  financiers  perceive 
danger  to  the  existing  form  of  society 
from  continued  war  borrowings,  why  do 
they  not  pass  the  word  along  quietly  to 
the  ordinary  banks  that  repudiation  must 
come,  and  that  it  were  better  to  strike 
against  further  loans?  Is  it  only  because 
these  gentlemen  know  that  the  banks  are 
between  the  devil  of  coercion  above  and 
the  deep  sea  of  bankruptcy  below,  so  that 
nothing  can  save  the  whole  of  finance 
and  capitalist  society  except  the  im- 
mediate cessation  of  the  war?  To  bring 
the  latter  about  is  the  aim  of  the  interna- 
tional financiers,  strangely  coinciding 
with  the  purpose  of  the  Stockholm  con- 
ference of  international  Socialists,  their 


88  THE   COLLAPSE  OF   CAPITALISM 

enemies.  But  this  tremendous  and  sacri- 
ficial world  war  will  not  pass  into  history 
as  having  been  in  vain.  It  is  to  be  re- 
corded as  the  deliverer  of  Socialism  out 
of  the  womb  of  the  old  society,  and  will 
not  stop  its  work  until  its  purpose  is  ful- 
filled. Capitalism  had  reached  the  stage 
in  its  development  where  it  needed  this 
war,  and  by  this  war  it  shall  die. 

In  truth,  the  war,  and  the  war  loans  on 
which  it  feeds,  may  go  on  for  some  time 
yet,  so  far  as  the  final  necessity  of  the 
mere  repudiation  of  the  debts  is  con- 
cerned, provided  the  depreciation  of  the 
currencies  continues  in  proportion  to  the 
increase  of  the  debts.  The  interest  always 
will  be  payable  in  money  of  lesser  value 
than  that  with  which  the  loan  was  paid. 
It  is  not  the  loans  in  themselves  which 
constitute  the  danger  of  capitalism,  but 
the  abnormal  impetus  which  they  give 
to  the  otherwise  perfectly  normal  eco- 
nomic process  that  results  in  the  destruc- 
tion of  money.  That  is  what  the  inter- 
national financiers  are  scenting. 

Let  us  now  proceed  to  take  a  close  view 
of  the  destructive  process  as  it  is  being 
furthered  by  the  war/ 


MONEY   SOURCE   FOR   WAR   LOANS        89 

The  first  question  is:  Where  did  the 
$90,000,000,000  which  ostensibly  could  be 
spared  for  investment  in  war  bonds  come 
from?  The  sum  taxes  our  power  of  con- 
ception. 

At  the  beginning  of  the  war  the  opinion 
was  widely  expressed  by  financiers  and 
their  clerks,  the  political  economists,  that 
it  hardly  could  last  as  long  as  six  months, 
owing  to  the  probable  immense  cost, 
which  would  exceed  the  availabe  re- 
sources in  money.  As  long  ago  as  June, 
1915,  the  National  City  Bank's  circular, 
estimating  that  a  year  of  war  would  re- 
quire the  raising  of  $15,000,000,000,  stated 
that  that  could  only  be  done  by  "pyramid- 
ing credit,"  that  is,  by  piling  credits  on 
substrata  of  other  credits.  Now  the  war 
has  gone  on  three  times  as  long  as  that 
contemplated  by  the  bank,  and  the  loans 
are  even  six  times  as  large  as  that  esti- 
mate. 

Such  financing  was  entirely  beyond  the 
conception  of  the  experts.  They  were 
thinking  within  the  traditional  rules  of 
fairly  conservative  banking,  and  they  be- 
lieved that,  when  the  ordinary  financial 
limits  were  reached,  the  war  would  have 


90  THE   COLLAPSE  OF   CAPITALISM 

to  Stop.  Little  did  they  dream  that  the 
financiers  and  the  whole  ruling  class 
would  lose  control  of  the  war  and  be 
controlled  by  it ;  that  the  patriotic  beast, 
once  unleashed,  could  not  in  its  fury  be 
kept  within  desired  bounds ;  that  it  would 
drag  their  society,  as  the  devil  does  the 
poor  soul,  into  perdition.  They  meant  to 
give  the  devil  a  finger,  but  he  irresistibly 
extended  his  clutch  over  the  whole  hand. 
When  we  come  to  answer  this  question 
of  the  loan  funds,  let  us  first  dispose  of 
the  supposition  that  it  may  have  been  to 
a  considerable  extent  current  money,  the 
identical  pieces  of  coin  or  paper  having 
been  used  over  and  over.  Inasmuch  as 
the  loans  were  payable  in  installments, 
it  might  be  imagined  that  the  money  paid 
to  the  governments  on  one  installment 
would  return  into  circulation  as  wages, 
etc.,  and  become  available  for  the  next 
installment.  However,  we  glean  from 
figures  published  by  the  German  gov- 
ernment, the  only  one  which  has  done 
so,  that  1,794,084  subscribers  took  154,- 
000,000  of  marks,  while  725  subscribers 
took  2,448,000,000  millions  of  the  fifth 
loan.    In  England,  where  the  per  capita 


MONEY   SOURCE   FOR   WAR   LOANS        91 

circulation  is  much  smaller  than  in  Ger- 
many, and  the  middle  class  nonexistent, 
the  small  payments  with  actual  currency 
must  have  been  almost  a  nullity.  In  short, 
the  loans  were  not  paid  in  current  money, 
and  the  participation  in  them  by  the 
workers  and  middle  class  (mostly  peas- 
ants) is  negligible,  so  far  as  amount  is 
concerned. 

We  may,  therefore,  now  proceed  to 
inquire  whether  the  loans  were  paid  out 
of  the  profit-originated  money  of  account. 

For  several  years  up  to  the  war  the 
annual  capitalization  in  London,  Paris 
and  Berlin  was  about  three  billion  dollars. 
That  is  to  say,  that,  after  part  of  the 
annual  profit  above  living  expenses  of 
the  capitalists  and  their  retainers — sol- 
diers, lawyers,  professors,  etc. — had  been 
used  to  extend  their  businesses,  the 
aforementioned  sum  remained  as  a  bal- 
ance in  money  form  available  for  tem- 
porary investment  in  new  issues  of 
securities.  Upon  the  outbreak  of  the  war 
private  issues  were  prohibited  in  order 
to  monopolize  the  money  markets  for 
government  issues.  Thus  there  became 
available  for  the  latter  during  the  three 


92  THE   COLLAPSE  OF   CAPITALISM 

years  of  war  nine  billion  dollars.  To  this 
may  be  added  two  billions  of  inerchants' 
capital  laid  idle  in  domestic  and  foreign 
commerce,  owing  to  the  direct  control  by 
the  governments  of  more  than  half  of  the 
industrial  production  and  to  the  blockade 
of  Germany,  but  offset  to  quite  an  extent 
by  the  additional  capital  called  for  by 
the  advance  of  as  much  as  1,000  per  cent 
in  the  cost  of  ships,  etc. 

Thus  we  find  eleven  billion  dollars  to 
be  all  the  visible  money  available  for  war 
loans.  It  was  probably  on  some  such 
calculation  that  financial  authorities 
based  their  prediction  already  referred  to 
that  the  war  could  scarcely  last  six 
months.  Yet  loans  of  eight  times  as  much 
have  been  paid,  and  we  are  consequently 
not  much  nearer  an  answer  to  our  ques- 
tion:   Where  did  the  money  come  from? 

"But  wait !"  I  hear  some  Socialist  glibly 
interject,  "you  forget  the  outrageous  war 
profits." 

What  has  attracted  our  Comrade's  at- 
tention and  confused  him  is  the  profit  of 
our  American  capitalists,  who  really  have 
something  tangible  to  show — billions  in 
gold   and    American    securities    formerly 


MONEY   SOURCE   FOR   WAR   LOANS        93 

owned  in  Europe  and  now  transferred  to 
them.  The  American  capitalists  grew 
richer,  but  the  European  poorer  to  the 
extent  that  their  own  governments'  ol>li- 
gations  were  worth  less  than  gold  or 
American  securities.  Besides  the  latter 
had  been  a  source  of  unadulterated  rev- 
enue, whereas  the  money  for  the  payment 
of  interest  and  the  redemption  of  the  prin- 
cipal of  the  war  bonds  which  the  Euro- 
pean capitalists  got  in  exchange  has  to 
come  out  of  their  own  profits  in  the  shape 
of  taxes. 

The  vaunted  "war  profits"  of  the  Euro- 
pean capitalists  cannot  have  added  mate- 
rially to  the  amount  of  money  available 
for  the  war  loans  placed  by  the  belligerent 
governments  in  their  respective  countries. 
Let  us  take  a  look  at  these  so-called  war 
profits. 

When  a  productive  capitalist  turns  out 
a  quantity  of  a  divisible  product,  one  part 
of  this  may  be  considered  to  represent 
the  value  of  the  material  consumed,  and 
another  part  the  new  value  added  by 
labor.  This  new  value  is  divided  between 
those  who  produced  it  and  the  capitalists. 
The  latter's  share  is  called  surplus  value 


94  THE   COLLAPSE  OF   CAPITALISM 

or  profit,  according  to  certain  relations. 
The  worker  receives  his  share  in  the 
shape  of  a  quantity  of  products  necessary 
to  keep  him  going,  or  rather  of  the  money 
to  buy  them  hiihself. 

What  matters  to  the  capitalist  class  is 
the  quantity  (or  rather,  value)  of  the 
products  which  it  can  appropriate  to  it- 
self. The  more  active  the  process  of  pro- 
duction is,  the  more  the  workers  can  be 
made  to  work,  the  greater  the  value  of 
the  products  going  to  the  capitalists,  both 
absolutely  and  relatively,  the  latter  owing 
to  the  comparatively  lesser  increase  of 
general  expenses.  The  money  derived 
from  such  real  profits  is  a  source  for  war 
loans. 

In  ordinary  times  goods  are  universally 
exchanged  with  each  other  on  the  basis 
of  their  comparative  values,  as  measured 
by  the  cost  of  producing  gold.  But  now 
there  is  abroad  a  spendthrift  buyer,  pay- 
ing, not  with  money,  but  by  running  into 
debt,  having  no  commodities  to  sell.  He 
cares  not  about  price,  and  what  he  buys 
he  destroys  promptly. 

When  demand  is  thus  active,  outrun- 
ning production,  prices  advance,  and  the 


MONEY    SOURCE    FOR    WAR    LOANS         95 

more  so,  if  production  centers  mainly  on 
useless  things,  such  as  cannons.  The  pro- 
gressive rise  of  prices  enables  the  pro- 
ductive capitalists  to  make  an  additional 
gain.  But  this  gain  is  illusory  for  the 
capitalist  class  considered  as  a  whole  and 
therefore  not  available  for  war  loans. 

Price  fluctuations  are  the  ever  renewed 
capitalistic  attempt  to  adjust  the  division 
of  the  product  between  the  owners  of 
money  and  the  owners  of  commodities, 
incidentally  regulating  wages.  These  fluc- 
tuations do  not  afifect  the  mass  (or  rather, 
value)  of  the  product  which  goes  to  the 
capitalists.  To  express  its  total  in  ever 
so  high  a  price,  does  not  make  it  more. 
Every  money  unit  of  profit  can  only  buy 
so  much  less.  Among  the  individual  cap- 
italists the  gain  of  one,  procured  by  rising 
prices,  must  be  the  loss  of  another,  not 
necessarily  at  the  same  time,  as  in  the 
case  of  the  money  capitalist  receiving  a 
fixed  rate  of  interest,  but  at  a  later  time, 
when  the  market  moves  downward.  The 
gains  and  losses,  not  being  profit,  or  the 
result  of  labor  performed,  must  offset 
each  other. 

If  the  illusory  gains  (they  are  so  largely 


96  THE  COLLAPSE  OF  CAPITALISM 

also  for  other  reasons  to  be  mentioned 
presently)  are  nevertheless  invested  by 
some  capitalists  in  war  loans,  they  de- 
prive the  capitalist  class  as  a  whole  of 
the  means  of  meeting  the  losses  when 
they  come.  The  severity  of  the  resultant 
crisis  is  the  measure  of  retribution  which 
an  anarchic  form  of  society  must  suffer 
for  its  imperfection. 

But  suppose  that  for  the  first  time  in 
economic  history  there  comes  no  falling 
market  after  the  war.  Then  there  are 
only  two  possibilities  which  could  explain 
such  a  phenomenon.  Either  gold  has 
undergone  a  sudden  and  permanent  de- 
cline of  value,  or  price  is  expressed  by 
depreciated  paper  money.  The  first  men- 
tioned explanation  is  quite  gratuitous,  as 
the  cost  of  producing  gold  has  actually 
risen  since  the  war.  What  depreciation 
means  to  our  present  social  order  we  need 
not  repeat  here. 

American  capitalists  may  gain  billions 
by  price  advances,  but  foreign  capitalists 
must  lose  correspondingly,  either  at  once 
or  later.  The  capitalist  class  as  a  whole 
cannot  gain  by  price  advances.  If  the 
European  capitalists  have,  as  many  think, 


MONEY   SOURCE  FOR   WAR  LOANS        97 

been  able  to  gouge  their  governments, 
the  latter  must  exact  the  return  in  due 
time  of  every  penny  by  the  taxes  neces- 
sary to  pay  off  their  debts  and  the  in- 
terest thereon.  The  capitalist  class  cannot 
add  to  its  profit  by  gouging.  It  cannot 
exact  anything  from  society  but  the  reg- 
ular surplus  product. 

Supposing  the  productive  capitalists  to 
have  been  able,  after  the  outbreak  of  the 
war,  to  take  advantage  of  the  other  ele- 
ments of  society,  would  not  the  latter 
have  so  much  less  money  to  invest  in 
war  loans,  as  the  former  had  more? 

Before  the  governments  had  been  able 
to  replace  capitalist  anarchy  by  their 
centralized  control  of  the  industries,  the 
productive  capitalists  exacted  exorbitant 
prices  from  the  reckless,  debt-making 
governments.  But  these  extra  gains, 
which  would  have  become  illusory,  any- 
how, in  the  course  of  time,  as  above  ex- 
plained, were  promptly  reclaimed  by  the 
governments  in  the  shape  of  war  taxes. 
The  British  government  has  raised  the 
taxation  from  815  million  dollars  in  the 
last  year  of  peace  to  2,570  million  dollars 
for    the    fiscal    year    ending    March    31, 


98  THE  COLLAPSE  OF  CAPITALISM 

1917.  The  German  industrial  organization 
permitted  of  speedy  regulation  of  war 
production  and  prices. 

There  was  another  source  of  vaunted 
"war  profits"  which,  however,  in  reality 
is  only  a  delusion.  Concerns  showed  un- 
precedented increases  of  surplus  on  their 
balance  sheets,  but  these  extraordinary 
profits  reflected  depreciated  money.  This 
depreciation  was  the  inevitable  result  of 
the  inevitable  inflation  of  the  paper 
money  circulation  in  every  warring  coun- 
try. The  issues  in  the  course  of  the  war 
have  been  increased  six  to  twelve  fold  in 
different  countries.  The  reader  knows 
from  the  theory  of  tokens  of  money  pre- 
sented in  a  previous  article  that  such  in- 
flation results  in  higher  prices.  After 
having  sold  at  the  advancing  prices,  the 
capitalist  is  obliged  to  enter  the  market 
again  as  a  buyer,  and  in  his  turn  pay  the 
highest  price.  He  finds  that  his  swollen 
purse  can  buy  no  more  than  his  former 
more  modest  one.  If  he  has  indulged  him- 
self personally  with  the  increase  of  his 
cash,  or  if  he  has  invested  it  in  war  loans, 
he  will  find  that  he  cannot  continue  pro- 
duction on  the  former  scale.  But,  no  mat- 


MONEY   SOURCE  FOR   WAR  LOANS        99 

ter  what  the  individual  capitalist  might 
do,  the  finale  would  be  the  same.  Money 
has  depreciated  50  per  cent,  and  unprece- 
dented increases  of  surplus  appear  on  the 
books  of  accounts — great  war  prosperity ! 
Money  further  depreciates  95  per  cent, 
and  every  little  capitalist  has  become  a 
millionaire.  The  depreciation  reaches  99 
per  cent,  and — a  yawning  abyss  opens 
before  the  eye.  The  illusion  that  there 
can  be  prosperity  as  the  result  of  a  wan- 
ton destruction  of  the  fruit  of  labor  has 
vanished. 

The  only  conclusion,  therefore,  is  that, 
while  a  certain  amount  of  additional 
profits  from  intensive  production  during 
the  war,  minus  the  increase  in  taxation, 
may  have  been  a  contributory  source  of 
money  supply  for  the  war  loans,  the 
legitimate  profit-originated  money  of  ac- 
count cannot  have  furnished  the  where- 
withal to  a  large  extent. 

We  have  now  completed  our  investiga- 
tion with  the  result  that  bank-made  credit 
money  stands  revealed  as  the  main  finan- 
cier of  the  war  together  with  the  equally 
fictitious  accretion  to  the  profit-originated 
money  of  account  due  to  rising  prices. 


100        THE  COLLAPSE  OF  CAPITALISM 

How  this  financing  was  accomplished  will 
be  told  in  the  next  chapter,  in  which  will 
also  be  considered  the  final  effects  of  this 
financing  on  the  condition  of  the  banks 
and  of  capitalist  society. 


CHAPTER  VII. 
The  War,  Birth  Deliverer  of  Socialism. 

THERE  are  two  ways  which  the  banks 
may  consider  for  financing  war  by 
means  of  bank-made  credit  money. 

One  is  by  direct  subscription  to  the 
war  loans  for  their  own  account ;  the 
other  is  by  making  the  necessary  loans 
to  depositors  willing  to  subscribe. 

The  former  was  adopted  by  the  banks 
at  the  beginning  of  the  war,  when  the 
general  opinion  among  bankers  was  that 
the  war  would  necessarily  be  short  owing 
to  exhaustion  of  the  money  supply.  The 
latter  way  was  the  one  followed  later 
to  procure  the  great  bulk  of  the  borrow- 
ings of  the  governments,  when  the  dis- 
illusionment regarding  the  possible  dura- 
tion of  the  war  began  to  spread. 

What  is  the  difference  between  the  two 
methods  in  their  effects  on  the  situation 
of  the  banks? 

In  lending  to  the  government,  the  bank 
accepts  a  long  term  obligation.  The  re- 
turn of  the  principal  cannot  be  had  except 
101 


FrtfrrrrTDoiTV  nrcnilTHFRN  H/VI  IFflW^lA  I IBR 


102        THE  COLLAPSE  OF  CAPITALISM 

by  sale  of  the  bonds  at  whatever  may  be 
the  stock  exchange  quotation  at  the  time 
the  bank  wants  to  sell.  The  banks  can- 
not go  very  far  in  long  time  investments, 
remembering  well  that  in  panics,  just 
the  time  when  money  is  wanted,  it  had 
become  impossible  to  sell  at  almost  any 
price. 

In  lending  to  depositors  the  bank  gets 
their  reasonably  short  obligations,  usually 
divided  into  what  appear  as  manageable 
instalments.  The  bank,  furthermore, 
promises  renewals  in  case  of  necessity, 
although  such  promises  are  made  in  a 
form  not  legally  binding  on  the  bank.  In 
this  way  the  bank  counts  on  a  fairly  reg- 
ular inflow  of  money,  instead  of  being 
tied  up  with  long  term  investments.  In 
the  latter  condition,  banks  are  apt  to  be 
heavily  drawn  on,  with  but  little  coming 
in,  and  the  balance  must  be  made  good 
at  the  clearing  house  with  actual  cash  or 
at  the  central  bank  with  whatever  may 
be  satisfactory  to  it.  The  war  bonds 
themselves  are  taken  by  the  banks  as 
collateral  security. 

But  there  is  another  difference  nor- 
mally, even  more  important. 


WAR.   BIRTH    DELIVERER  103 

The  borrowed  money  is  disbursed  by 
the  government  principally  by  issuing 
checks  to  the  productive  capitalists  who 
deposit  them  in  their  banks.  The  bank 
deposits,  or  the  banks'  liabilities  payable 
on  demand,  are  thus  swelled.  This  is,  of 
course,  true  in  either  case,  whether  the 
government  funds  are  obtained  direct 
from  the  bank  or  from  private  investors. 
But  for  the  banks,  there  is  this  all-im- 
portant diflference  that,  if  they  have  ad- 
vanced the  money  direct,  the  deposits  will 
stay  swelled,  with  all  the  attendant  dan- 
gers of  increasing  and  perhaps  sudden 
demands  by  the  depositors  for  cash ; 
whereas,  if  the  banks  advanced  the  money 
to  subscribers,  the  swelling  of  the  deposit 
accounts  of  the  industrial  capitalists  is 
accompanied  by  the  reduction  of  the  de- 
posit accounts  of  the  holders  of  bonds,  as 
the  money  borrowed  by  them  is  being 
paid  off. 

How  the  banks  could  advance  the 
fabulous  sums  for  the  war  is  no  longer  a 
mystery  to  the  attentive  reader  of  the 
analysis  of  bank-made  credit  money  in  a 
previous  article.  If  the  banks  had  turned 
over  their  cash  to  the  government,  there 


104        THE  COLLAPSE  OF  CAPITALISM 

would  at  no  moment  have  been  any  in- 
crease whatever  of  the  money  of  account ; 
or,  if  the  banks  had  discounted  com- 
mercial paper  at  the  central  banks  for 
the  purpose,  the  increase  would  only 
have  been  quite  temporary.  Also  with 
such  simple  methods  the  banks'  financing 
of  the  war  would  soon  have  reached  its 
end.  The  trick  is  how  to  pay  unlimited 
amounts  without  paying  a  penny.  Bank- 
made  credit  money  had  long  solved  this 
problem.  The  private  subscriptions  were 
collected  by  the  banks  which  transmitted 
them  to  the  government  with  authoriza- 
tion to  issue  demand  drafts  on  them  for 
the  aggregate.  These  drafts,  in  due 
course,  were  deposited  by  the  productive 
capitalists  and  cleared  against  each  other 
in  the  approved  system  of  money  of 
account. 

Can  billions  upon  billions  of  dollars' 
worth  of  labor  products  be  taken  out  into 
the  open  and  blown  up,  without  costing 
anybody  anything,  owing  to  an  ingenious 
financial  system?  Is  there  no  day  of 
reckoning  coming?  It  seems  hardly 
necessary  to  pause  here  and  consider. 

That  much  was  clear  to  the  govern- 


WAR,    BIRTH    DELIVERER  105 

ments  and  the  leading  banks  that  it  was 
of  the  utmost  importance  to  induce  the 
general  investors  to  subscribe.  To  raise 
the  "Victory  Loan"  in  England  last 
spring  a  campaign  was  set  on  foot  such 
as  had  never  been  seen  in  that  country 
for  any  purpose.  In  due  time  the  world 
was  informed  that  the  "Victory  Loan" 
had  been  a  great  victory.  However,  it 
will  be  instructive  to  take  a  little  closer 
look  at  it. 

This  5  per  cent  loan  was  issued  at  95; 
that  is,  the  government  gave  its  obliga- 
tion for  £100  on  payment  of  only  £95. 
The  banks  mutually  agreed  to  lend  the 
depositors  £90.  All  the  subscribed  had 
to  put  up  was  £5.  Accordingly,  he  collects 
from  the  government  interest  on  the 
obligation  of  £100,  or  £5,  and  he  pays  to 
the  bank  5  per  cent  on  £90,  or  £41/^.  His 
own  contribution  of  £5  yields  him  the 
difference  between  the  £5  he  receives  and 
the  41/^  he  has  to  pay,  or  £i/^,  which  is 
10  per  cent.  The  banks  allow  this  ad- 
vantage to  the  investors  with  an  eye  to 
the  pressure  which  they  may  exert  here- 
after on  their  debtors  so  that  these  may 


106         THE   COLLAPSE  OF  CAPITALISM 

reduce  their  deposits  by  paying  up  their 
matured  instalments. 

Here,  then,  is  a  loan  in  which  the  banks 
have  not  directly  invested  at  all,  but 
which  was  paid,  all  but  5  per  cent,  with 
bank-made  credit  money. 

The  savings  banks  of  Germany  have 
subscribed  to  war  loans  in  excess  of  the 
amount  of  their  deposits,  although  these 
were  already  supposed  to  be  invested. 
The  reader  may  well  be  pardoned  if  he 
considers  this  statement  as  absurd.  Still, 
the  fact  is  that  the  savings  banks  pledged 
their  investments  to  the  War  Loan  Banks, 
receiving  75  per  cent  in  cash  for  invest- 
ment in  the  impending  loan.  When  the 
next  loan  came  around  they  similarly 
pledged  their  75  marks  in  war  bonds  for 
another  loan  of  75  per  cent  of  the  value 
of  these;  that  is,  561/4  marks,  etc.  The 
war  loan  banks,  which  are  in  reality 
nothing  but  unofficial  appendages  of  the 
Imperial  Bank,  do  not  admit  having  had 
outstanding  at  any  time  more  than  4,000 
million  marks  in  notes.  These  banks,  as 
well  as  any  other  banks  in  Germany  and 
in  the  other  belligerent  countries,  may 
prevaricate,    dress    their    windows    for 


WAR,    BIRTH    DELIVERER  107 

special  dates,  or  suspend  publication  of 
reports,  but  they  cannot  conceal  the  gen- 
eral facts  as  to  the  condition  they  are  in 
as  a  whole. 

The  expansion  of  deposits  precedes 
and  calls  forth  the  inflation  of  the  token 
currency.  This  is  doomed  to  depreciation. 
Only  England  (and  to  a  lesser  degree  her 
protege,  France)  has  only  indirectly 
(through  depreciation  of  the  dollar  in 
neutral  countries)  to  acknowledge  such 
depreciation  as  a  consequence  of  the  war. 
This  is  due  to  England's  shipments  of 
gold  to  the  United  States,  to  the  inhibi- 
tion of  such  shipments  to  other  countries, 
the  reduction  of  her  gold  reserve  to  a 
minimum,  the  sacrifice  of  her  best  securi- 
ties, the  assistance  of  the  United  States 
first  by  loans  against  security,  and  now 
by  shipments  of  goods  without  payment 
and  the  purchase  of  neutral  Sterling 
drafts  at  the  gold  value.  As  a  conse- 
quence of  the  last  mentioned  assistance 
the  dollar  is  now  depreciating  in  the 
neutral  countries,  gold  shipments  to  them 
being  under  embargo.  Nevertheless, 
what  America  is  doing  to  sustain  the 
pound  (and,  secondarily,  the  franc)  does 


108        THE  COLLAPSE  OF  CAPITALISM 

not  appear  sufficient  to  the  Journal  des 
Debats,  the  distinguished  French  capi- 
talist mouthpiece,  which,  according  to  a 
cablegram  in  the  New  York  Times  of 
August  7,  1917,  says  that  "America  must 
open  credits  to  the  allies  as  large  as  may 
be  needed,"  "for  to  refuse  them  would 
make  a  continuation  of  the  war  impos- 
sible." 

I  do  not  pretend  to  have  any  idea  how 
much  strength  the  dollar  can  contribute 
to  sustain  the  financial  structure  of  Eng- 
land and  of  the  world,  or  how  soon  we 
may  succeed  in  ending  the  war  by  throw- 
ing our  military  power  into  the  scale. 
Should  the  war  last  another  year,  the 
demand  debts  of  the  European  banks  will 
have  increased  by  another  50,000  million 
dollars,  the  value  of  money  will  be  fur- 
ther reduced,  and  perhaps  near  the  van- 
ishing point,  aside  from  spending  the 
strength  of  the  dollar  in  which  borrow- 
ings of  18,000  million  dollars  are  now 
contemplated  for  the  year.  A  sudden 
debacle  need  surprise  nobody ;  least  of 
all  could  it  surprise  the  international 
financiers  and  the  bankers.  They  have 
been   drifting   along,   feeling   themselves 


WAR,    BIRTH    DELIVERER  109 

powerless  in  the  hand  of  fate.  Ere  long 
the  banks,  and  with  them  the  great  mass 
of  the  industrial  capitalists,  might  reach 
that  frame  of  mind  in  which  continued 
struggle  against  Socialism,  for  the  sake 
of  the  little  that  may  be  saved,  may  not 
seem  worth  the  anxiety,  and  conclude 
that  they  may  as  well  surrender  sooner 
as  later. 

In  the  meantime  the  governments  are 
making  supreme,  though  unconscious, 
efforts  to  prepare  the  world,  through 
social  regulation  of  production  and  con- 
sumption, for  the  impending  transforma- 
tion of  the  political  form  of  social  organ- 
ization into  the  industrial  form.  The 
political  form  has  been  adequate  for  in- 
dividualistic production,  even  when,  with 
the  development  of  capitalism,  produc- 
tion took  on  an  entirely  social  aspect. 
Money  was  the  indispensable  tool  to 
make  this  evolution  possible  in  a  funda- 
mentally individualistic  society.  When 
society  becomes  an  organism,  conscious 
of  being  such,  the  necessity  of  money 
disappears  at  once.  Or  to  reverse  the 
statement,  when  the  category  of  money 
is   destroyed   through   the   operation   of 


110         THE   COLLAPSE  OF   CAPITALISM 

some  economic  law,  the  commodity- 
producing  society  and  its  organic  form, 
the  political  state,  disappear  at  once,  and 
Socialism,  organized  industrially,  arises 
spontaneously. 

Such  appears  to  be  the  inevitable  im- 
mediate outcome  of  a  continuation  of  the 
war  for  the  comparatively  short  time 
necessary,  at  the  present  and  steadily 
growing  cost,  to  insure  the  mechanical 
collapse  of  capitalism.  There  remains  for 
us  now  only  to  take  a  prospective  of  the 
condition  in  which  capital,  the  controlling 
element  of  society,  would  find  itself, 
should  the  Socialists  or  financiers,  or  any 
other  group,  succeed  in  bringing  about 
immediate  peace. 

In  spite  of  deterioration  of  the  ma- 
chinery of  production  and  transportation 
during  the  war ;  in  spite  often  of  scarcity 
of  raw  and  accessory  materials,  and  the 
withdrawal  of  the  most  efficient  mental 
and  manual  workers  from  industry,  the 
general  productive  efficiency  has  been 
materially  heightened  by  centralization 
and  co-ordination  of  effort  through  gov- 
ernment control.  It  was  possible  to  reach 
and  maintain  the  maximum  of  production 


WAR,    BIRTH    DELIVERER  111 

attainable  under  existing  technical  con- 
ditions, because  production  was  carried 
on  for  the  direct  purpose  of  consumption 
by  an  insatiable  and  spendthrift  cus- 
tomer. This  maximum  is  not  likely  to 
be  exceeded,  or  even  equalled,  when  profit 
becomes  the  object  of  the  buyer  of  the 
goods,  when  this  profit  must  be  paid  out 
of  current  income,  instead  of  by  I.  O.  U.'s 
on  the  future.  More  likely  will  produc- 
tion decrease. 

Then  will  the  smaller  mass  of  com- 
modities still  be  confronted,  and  their 
price  be  expressed,  by  the  existing  and 
undiminished  mass  of  tokens.  Deprecia- 
tion makes  another  step  forward,  prices 
rise  further.  Usually  the  rising  tendency 
of  prices  has  induced  contracts  for  future 
delivery  of  goods,  and  thus  has  inaugu- 
rated an  industrial  boom.  But  this  time 
speculation  is  nipped  in  the  bud  by  the 
extreme  scarcity  of  loanable  capital. 
Therefore,  the  sum  of  tokens  now  will 
suffice  for  peace  time  circulation,  and 
the  war  time  pressure  on  the  banks,  when 
the  growing  circulation  requirement 
necessitated  their  constant  issue  of  new 
notes,  relaxes. 


112        THE   COLLAPSE  OF  CAPITALISM 

But  the  pressure  does  not  cease  alto- 
gether. Whatever  the  sum  of  depreciated 
tokens,  it  always  will  be  required  for  the 
circulation,  allowing  merely  for  a  portion 
to  remain  in  banks  during  a  technically 
necessary  time.  The  percentage  of  re- 
serves against  the  huge  deposits  must, 
therefore,  remain  perilously  small,  unless 
the  banks  are  able  to  reduce  the  deposits 
materially.  Now,  we  know  that  it  is  only 
the  bank-made  credit  money  which  is 
subject  to  being  reduced.  Its  cancellation 
can  be  effected  only  by  means  of  profit- 
originated  money  of  account.  In  other 
words,  it  takes  new  profit  accumulation 
in  money  form  to  pay  off  the  bank  loans. 
The  wastage  of  war  cannot  be  made  to 
count  for  nothing  through  mere  financial 
hocus-pocus ;  the  wastage  must  be  re- 
placed by  productive  labor,  namely,  that 
part  of  the  latter  which  is  appropriated 
by  the  capitalists. 

In  the  three  years  of  war  bank-made 
credit  money  and  fictitious  profit-origin- 
ated money  has  been  issued  at  the  rate 
of  nine  times  the  ante  bellum  profit  ac- 
cumulation in  money  form.  That  means 
that  nine  times  three  years,  or  27  years, 


WAR,    BIRTH    DELIVERER  113 

are  necessary  to  pay  off  the  debts  of  the 
bondholders  to  the  banks,  and  to  cancel 
the  fictitious  profits  (really  only  gains) 
by  the  necessary  losses.  This  period 
might  be  shortened  in  individual  cases 
by  extra  profits,  the  conversion  of  mer- 
chandise stocks  into  money  and  the  sale 
of  the  securities.  But  none  of  these 
things  is  possible  on  an  extensive  scale, 
and  nothing  can  shorten  the  average 
time. 

For,  since  the  deposits  can  be  dimin- 
ished only  very  gradually,  relief  to  the 
banks  from  this  direction  (prompt  relief 
from  diminished  circulation  requirement 
was  mentioned  above)  must  be  equally 
slow.  Therefore,  the  banks  will  continue 
to  remain  in  a  precarious  condition.  They 
may  be  able  to  drag  along  for  a  number 
of  years  by  resuming  the  issue  of  addi- 
tional paper  money,  whenever  their  funds 
give  out,  in  spite  of  the  reduced  mass  of 
commodities.  Thus  they  once  more  enter 
the  vicious  circle,  with  little  hope  of  ever 
escaping  from  it.  The  only  possibility  of 
rising  out  of  the  death  swamp  of  depre- 
ciation lies  in  a  rapid  increase  in  the  mass 
of  commodities  by  a  demand  for  them. 


114        THE  COLLAPSE  OF  CAPITALISM 

For  this,  however,  there  exists  little 
chance  for  many  years  to  come  for  the 
following  reasons : 

First — The  banks  cannot  entertain  any 
thought  of  adding  to  their  outstanding 
credit  money.  This  circumstance  alone 
prevents  an  industrial  revival.  But  the 
whole  truth  is,  that  there  will  exist  prac- 
tically no  loan  capital  of  any  kind.  Dis- 
missing all  idea  of  continuing  the 
accustomed  and,  according  to  Marxian 
economics,  necessary  industrial  expan- 
sion, the  industrial  capitalists  will  have 
enough  trouble  merely  to  make  both  ends 
meet.  Their  profit  accumulation  in  money 
form,  on  the  pre-war  scale,  already  is 
pledged  for  many  years  for  the  redemp- 
tion of  their  bank  loans.  None  of  it  can 
serve  as  loan  capital.  The  merchants, 
whose  capital  normally  relieves  the  pro- 
ductive capital,  expect  to  realize  on  their 
investments  in  order  to  put  back  the 
money  in  its  former  channel.  But  where 
is  this  money  to  come  from? 

Next,  it  might  be  suggested  that  more 
profit  would  be  accumulated  in  money 
form  by  accumulating  less  in  means  of 
production.    Supposing  that   the   aggre- 


WAR,    BIRTH    DELIVERER  115 

gate  profit  equals  ante  bellum  years,  then 
this  is  precisely  what  must  be  done — not 
to  lend  wings  to  capitalism,  but  to  allow 
it  to  walk  on  crutches.  For  out  of  the 
additional  funds  so  gained,  at  the  expense 
of  industrial  advancement,  must  be  paid 
the  merchants'  capital,  supposed  to  have 
been  only  temporarily  invested,  and  now 
needed ;  the  renovation  of  plant,  the 
worse  for  wear  and  partly  obsolete 
through  new  discoveries;  and  taxes, 
greatly  increased  compared  to  former 
times. 

As  stated,  all  this  is  predicted  on  the 
former  scale  of  profits.  The  prospect  of 
its  materialization  is  not,  however,  very 
flattering  with  the  industrial  capitalists 
expected  to  operate  without  borrowed 
money,  and  with  30,000,000  men  back 
from  the  war  with  impaired  productive 
capacity,  but  accustomed  to  liberal  con- 
sumption. 

The  competitive  struggle  will  be 
sharpened.  Some  industrial  capitalists 
are  bound  to  progress,  but  more  of  them 
than  ever  before  will  fall  by  the  wayside. 
The  sale  of  the  government  bonds  among 
their  assets,   together  with   the   sale  of 


116        THE  COLLAPSE  OF  CAPITALISM 

merchants'  bonds,  the  very  high  rate  of 
interest  which  any  loanable  money  com- 
mands— all  depress  the  stock  exchanges. 
The  securities  in  which  the  banks  have 
invested  their  own  capital,  shrink  in 
value.  Even  in  the  spring  of  1917  the  loss 
of  value  of  the  securities  dealt  in  on  the 
London  Stock  Exchange  was  estimated 
at  $3,500,000,000  since  the  beginning  of 
the  war.  The  solvency  of  the  banks, 
nominal  as  we  know  it  always  to  have 
been,  may  become  a  question  in  the  minds 
of  a  considerable  number  of  depositors, 
and  finally  bring  about  the  universal 
"run."  Instead  of  the  long-drawn  out 
agony  we  then  would  have  the  sudden 
collapse. 

But  we  seem  to  forget  all  about  those 
little  piles  of  gold  which  each  central 
bank  is  guarding  so  jealousy.  The  pres- 
ent intention  of  the  Germans,  always  in 
the  vanguard  of  economic  organization, 
is  to  hold  its  gold  for  international  trade 
conducted  by  their  government  as  the  sole 
buying  and  selling  agent  of  the  produc- 
tive capitalists.  There  would  be,  for  in- 
stance, one  selling  agent  in  the  United 
States  for  German  chemicals,  who  would 


WAR,    BIRTH    DELIVERER  117 

be  at  the  same  time  the  buying  agent  of 
cotton.  The  transactions  in  chemicals 
and  cotton  would  be  made  dependent  on 
each  other.  This  would  compel  the  Amer- 
ican government  to  act  likewise  as  sole 
buyer  and  seller.  Thus  another  great 
step  forward  will  be  made  not  only  to- 
ward national  but  toward  international 
control  of  industries.  The  gold  is  to  be 
used  in  cases  where  barter  is  impossible. 
Otherwise  it  has  lost  its  significance. 

Many  great  capitalists,  as  well  as  the 
rank  and  file  of  their  class,  even  now  live 
in  the  illusion  that  nothing  but  the  polit- 
ical class  state  and  the  ancient  system  of 
exploitation  are  thinkable.  Those  of  one 
country  believe  they  can  be  benefitted 
by  victory  over  those  of  another  country. 
They  dream  even  now  of  empire  in 
China,  Africa,  or  wherever  subjugation 
is  possible. 

But  in  reality  the  long  vista  of  capital- 
ism has  vanished.  The  moment  was 
approaching  when,  even  in  the  normal 
course  of  its  development,  it  was  to  be 
wrecked  by  its  fundamental  flaw,  the 
necessity  of  commodity  money.  When 
this   became   insufficient   the  game   was 


118         THE   COLLAPSE  OF   CAPITALISM 

played  with  paper.  This  represented 
titles  to  the  money  commodity  and  passed 
from  one  to  the  other  as  being  as  good 
as  the  real  thing.  If  the  game  can  be 
said  to  rest  on  any  theory,  it  is  that  these 
titles  are  not  meant  to  be  ever  made  good  ; 
that  they  must  remain  unredeemed  in  all 
eternity,  and  that  they  may  reach  the 
colossal  figures  of  astronomy.  For,  were 
they  ever  redeemed,  whether  in  gold  or 
in  another  kind  of  paper,  the  payment 
would  be  worth  nothing.  Faith  excludes 
the  thought  of  redemption.  It  is  for 
science  to  discover  the  forces  that  will, 
by  compelling  redemption,  end  the  ab- 
surdity. 

Early  peace  offers  the  prospect  of  the 
lingering  death  struggle  of  capitalism,  its 
last  years  attended  by  widespread  suf- 
fering and  probably  intense  economic  and 
political  perturbation. 

Continuance  of  the  war  assures  the 
early  and  sudden  downfall  of  capitalism 
in  consequence  of  the  worldwide  failure 
of  the  financial  mechanism. 

But,  whether  it  be  peace  or  more  war, 
the  days  of  the  rule  of  gold  are  numbered. 
History  never  can  overestimate  the  im- 


WAR,   BIRTH    DELIVERER 


119 


portance   of   the   part   played   in   human 
progress  by  the  yellow  metal.   It  was  the 
tool  placed  by  nature  into  the  hands  of 
man  for  the  erection  of  an  edifice  in  which 
was  to  dwell  a  race  emancipated  from 
physical  care  and  free  to  devote  its  mental 
gifts   to   the   highest   aims.     But   in    all 
animate   nature   the   evolution   of   lower 
to    higher    forms    is    replete    with    the 
tragedies   of   the    struggle    for   exitence. 
The  golden  tool  became  the  master  of  the 
workman,  setting  the  pace  for  him  and 
driving    him    pitilessly    and    relentlessly 
toward  the  completion  of  a  task  he  under- 
stood not.    Now  the  tool  fails  for  further 
service.    It  is  breaking  in  man's  hand. 
But,  behold!    Completed  is  the  dwelling 
in  which  the  struggle  between  man  and 
man  shall  be  unknown,  and  in  which  the 
fateful  gold,  stripped  of  power,  cleansed 
of  blood,  will  be  restored  to  its  natural 
character — that  of  being  a  mere  thing  of 
beauty  and  innocent  joy. 


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